2016 engineering & construction conference · 2020-06-05 · 2016 engineering &...
TRANSCRIPT
2016 Engineering amp Construction Conference
June 15ndash17 2016 The Westin Austin DowntownAustin Texas
Lunch and General SessionEconomic amp Tax Perspectives
Dr Patricia Buckley US Managing Director for Economics Deloitte Services LP
Honorable Thomas M Davis III Former Member of Congress (VA) Former Chair of the House Committee on Oversight amp Government Reform
Jonathan TraubManaging Principal Deloittersquos Tax Policy Group Deloitte Tax LLP
1230 ndash 200 pm
Global economic outlook 2016 is being shaped by the same three big trends that shaped 2015
Creates ldquowinnersrdquo and ldquolosersrdquo Impact depends on the sector you are in and where you operate
High value of the US dollar
Slowing l GrowthLow oil prices
OIL
Low oil prices create many winners and losers
$ per barrel (WTI)
Source Energy Information Agency and FRED Graph
OIL
The rising value of the dollar challenges US exporters but helps US consumers and countries that import to the US
Trade-weighted value of the $
Source Federal Reserve Board of Governors and FRED Graph
The world is adjusting to a slower growing China
Change in Chinas Real GDP Year over Year
Source China NBS
00
20
40
60
80
100
120
Perc
ent
So with these trends in place what is happening to US GDP growth
Source Bureau of Economic Analysis
Percent change in GDP
06
39
20
14
08
00
05
10
15
20
25
30
35
40
45
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 05
Percent Change in GDP
How are these trends shaping US growth
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Lunch and General SessionEconomic amp Tax Perspectives
Dr Patricia Buckley US Managing Director for Economics Deloitte Services LP
Honorable Thomas M Davis III Former Member of Congress (VA) Former Chair of the House Committee on Oversight amp Government Reform
Jonathan TraubManaging Principal Deloittersquos Tax Policy Group Deloitte Tax LLP
1230 ndash 200 pm
Global economic outlook 2016 is being shaped by the same three big trends that shaped 2015
Creates ldquowinnersrdquo and ldquolosersrdquo Impact depends on the sector you are in and where you operate
High value of the US dollar
Slowing l GrowthLow oil prices
OIL
Low oil prices create many winners and losers
$ per barrel (WTI)
Source Energy Information Agency and FRED Graph
OIL
The rising value of the dollar challenges US exporters but helps US consumers and countries that import to the US
Trade-weighted value of the $
Source Federal Reserve Board of Governors and FRED Graph
The world is adjusting to a slower growing China
Change in Chinas Real GDP Year over Year
Source China NBS
00
20
40
60
80
100
120
Perc
ent
So with these trends in place what is happening to US GDP growth
Source Bureau of Economic Analysis
Percent change in GDP
06
39
20
14
08
00
05
10
15
20
25
30
35
40
45
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 05
Percent Change in GDP
How are these trends shaping US growth
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Global economic outlook 2016 is being shaped by the same three big trends that shaped 2015
Creates ldquowinnersrdquo and ldquolosersrdquo Impact depends on the sector you are in and where you operate
High value of the US dollar
Slowing l GrowthLow oil prices
OIL
Low oil prices create many winners and losers
$ per barrel (WTI)
Source Energy Information Agency and FRED Graph
OIL
The rising value of the dollar challenges US exporters but helps US consumers and countries that import to the US
Trade-weighted value of the $
Source Federal Reserve Board of Governors and FRED Graph
The world is adjusting to a slower growing China
Change in Chinas Real GDP Year over Year
Source China NBS
00
20
40
60
80
100
120
Perc
ent
So with these trends in place what is happening to US GDP growth
Source Bureau of Economic Analysis
Percent change in GDP
06
39
20
14
08
00
05
10
15
20
25
30
35
40
45
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 05
Percent Change in GDP
How are these trends shaping US growth
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Low oil prices create many winners and losers
$ per barrel (WTI)
Source Energy Information Agency and FRED Graph
OIL
The rising value of the dollar challenges US exporters but helps US consumers and countries that import to the US
Trade-weighted value of the $
Source Federal Reserve Board of Governors and FRED Graph
The world is adjusting to a slower growing China
Change in Chinas Real GDP Year over Year
Source China NBS
00
20
40
60
80
100
120
Perc
ent
So with these trends in place what is happening to US GDP growth
Source Bureau of Economic Analysis
Percent change in GDP
06
39
20
14
08
00
05
10
15
20
25
30
35
40
45
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 05
Percent Change in GDP
How are these trends shaping US growth
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
The rising value of the dollar challenges US exporters but helps US consumers and countries that import to the US
Trade-weighted value of the $
Source Federal Reserve Board of Governors and FRED Graph
The world is adjusting to a slower growing China
Change in Chinas Real GDP Year over Year
Source China NBS
00
20
40
60
80
100
120
Perc
ent
So with these trends in place what is happening to US GDP growth
Source Bureau of Economic Analysis
Percent change in GDP
06
39
20
14
08
00
05
10
15
20
25
30
35
40
45
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 05
Percent Change in GDP
How are these trends shaping US growth
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
The world is adjusting to a slower growing China
Change in Chinas Real GDP Year over Year
Source China NBS
00
20
40
60
80
100
120
Perc
ent
So with these trends in place what is happening to US GDP growth
Source Bureau of Economic Analysis
Percent change in GDP
06
39
20
14
08
00
05
10
15
20
25
30
35
40
45
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 05
Percent Change in GDP
How are these trends shaping US growth
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
So with these trends in place what is happening to US GDP growth
Source Bureau of Economic Analysis
Percent change in GDP
06
39
20
14
08
00
05
10
15
20
25
30
35
40
45
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 05
Percent Change in GDP
How are these trends shaping US growth
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
How are these trends shaping US growth
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthelliphellip but will strong employment growth continue this year
Source Bureau of Labor Statistics
Change in thousands
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
But the gains are not evenly distributed
Source Bureau of Labor Statistics
Employment change by selected industry
30
295
208 210
72
639
276
441
130
-135
295
26
284
113
621
472 441
93
-200
-100
0
100
200
300
400
500
600
700
2014 30 million 2015 27 million
thou
sand
s
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
The contraction in business investment in the 1st
quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
Source BEA
Contributions to percent change in business investment
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Slow productivity growth limits growth
-1
0
1
2
3
4
5
6
96 98 00 02 04 06 08 10 12 14
1995-2003 average = 29
2004-2015 average = 15
Source BLSHaver Analytics
Output per hour business sector Percent change year ago
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Where have the construction gains occurred
Nonresidential construction recently reached it prerecession peak while residential remains subdued
0
200
400
600
800
1000
1200
1400
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16
Value of Construction Installed or Erected
Residential
Nonresidential
Billions
Source Census Bureau
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Where have the construction gains occurredManufacturing construction was the biggest gainer in 2015
0
20
40
60
80
100
120
Nonresidential Construction
2014 2015
Source Census Bureau
Billions
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
How are these trends shaping US growth
Source BEA
Contributions to percent change in GDP
12
0203
09
-08
-11
00
24
0503
00
06
-05
05
20
03 03
-07
01
-04
03
17
-03
03
-02 -03
01 00
13
-08
06
-02 -03
0002
-15
-10
-05
00
05
10
15
20
25
30
PersonalConsumption
BusinessInvestment
ResidentialInvestment
Change inPrivate
Inventories
Exports Imports GovernmentSpending
Q1 2015 06 Q2 2015 39 Q3 2015 20Q4 2015 14 Q1 2016 08
Source BEA
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Exports will continue to be a weak component
Source Bureau of Economic Analysis
Exports contribution to GDP growth
3216 20 26 29 27
1808
-10 -07
12 0717 11
19 23
09
-06 -02
0209 06
09
10
07
-11
1309
0504
05 02
-3-2-1012345
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP minus exports Exports
Perc
enta
ge
085 pp 04 pp 02 pp
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
The slow growth story isnrsquot just China
88
90
92
94
96
98
100
102
104
106
108
110
112
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Japan
USUK
Euro Area
Change in Real GDP - Q1 2008 = 100
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar results
But what are some things that could cause a change in outlook
bull Hard landing for China
bull Federal Reserve Board actions
bull Brexit
bull November 8
Copyright copy 2015 Deloitte Development LLC All rights reserved
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
2016 Engineering amp Construction Conference
Tom Davis June 16 2016
State of Politics
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
The Ideological sorting of the parties
Polarization
1 Redistricting
bull Residential Sorting
bull Voting Rights Act
bull Gerrymandering
2 Media Business Models
bull Cable News
bull Talk Radio
bull Internet
3 Money in Politics
bull McCainmdashFeingold
bull Citizens United
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Map Maryland 3rd
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Map Illinois 4th
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Map Maryland 2nd
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Map Pennsylvania 7th
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
64
45
68
4638
29
RepRep lean
DemDem lean
1994 2004 2014
Government regulation of business usually does more harm than good
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
39 37
59
2924 24
1994 2004 2014
Stricter environmental laws and regulations cost too many jobs and hurt the economy
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Note Percentages sum across and do not total 100 due to exclusion of those with neutral opinions of one partyor both parties
Source American National Election Studies
Image courtesy of Alan Abramowitz
Table1 feeling about democratic and republican parties by decade
Decade Both Positive Both Negative One positive One negative
1978ndash1980 35 3 33
1982ndash1990 33 2 40
1992ndash2000 23 4 50
2002ndash2010 16 5 56
2012 7 8 65
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
The incredible shrinking middle
Most LiberalGOP
Most ConservativeDemocrat
More Liberal
More Conservative
ldquoModeratesrdquo
Based on legislative voting records and analysis by National Journal
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
US House of representatives
Most LibGOP
Most ConsDEM
34479
More Liberal
More Conservative
1982
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
25258
More Conservative
1994
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
13731
More Conservative
2002
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
More Liberal
US House of representatives (cont)
Most LibGOP
Most ConsDEM
3
More Conservative
2014
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
More Liberal
US Senate
Most LibGOP
Most ConsDEM
58
More Conservative
1982
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
More Liberal
US Senate (cont)
Most LibGOP
Most ConsDEM
34
More Conservative
1994
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
7
2002
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
More Liberal
More Conservative
US Senate (cont)
Most LibGOP
Most ConsDEM
0
2014
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
CURRENT HOUSE LINEUP247 Republican188 Democrats
Democrats Need 30 Seats Gain to Win the House
OUTLOOKSolid Republican 206Solid Democrat 170
Probable Pick-Ups +1R+4D
Competitive Seats 25R6D
Potentially Competitive Seats 1D12R
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
CURRENT SENATE LINEUP54 Republican
46 DemocratsDemocrats Need 4 Seat Gain Plus President for Control
10 Democrats8 Safe Democrats2 Competitive Democrats0 Potentially Competitive
Democrat
24 Republican12 Safe Republicans (42)
7 Competitive Republicans5 Potentially Competitive
Republican
UP FOR RE-ELECTION
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
2016 Senate Races
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
2012 Obama
Percentages
2014 Democratic
Senate held
2014Democratic
Of Two Party Vote
355 WVA 357
369 Ark 411
399 SD 369
406 LA 441
408 Alaska 489
417 Montana 504
484 NC 492
512 VA 504
515 CO 490
520 Iowa 457
520 NH 516
Republican Senate Pickups 2014 Elections
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
The Cook Political Report
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Presidential voting by state (1992ndash2012)
The chart below shows the frequency with which each state has voted Democratic andor republican in the last six Presidential elections
New Senate breakdown by presidential voting
32 D
4 R
3 D
3 R
2 D
2 R
2 D
2 R
4 D
10 R
2 D
8 R
1D
25 R
Voted DEM 5X
3 States | 15 EV
Voted DEM 6X
19 States | 242 EV
Voted DEM 4X
2 States | 24 EV
Voted DEM 3X
2 States | 38 EV
Voted DEM 2X
7 States | 61 EV
Voted DEM 1X
5 States | 56 EV
Voted GOP 6X
13 Sates | 102 EV
Voted GOP 1X
Voted GOP 2X
Voted GOP 3X
Voted GOP 4X
Voted GOP 5X
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Minority vote as percent of votes cast for president
Increasing minority vote
Year Percent Black Percent Hispanic Percent Asian1992 8 2 1
1996 10 5 1
2000 10 7 2
2004 11 8 2
2008 13 9 2
2012 13 10 3
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Presidential result among Hispanic votersndashkey demos
Increasing minority vote
Year D Percent R Percent Third-Party Percent1992 61 25 14
1996 73 21 6
2000 62 35 3
2004 53 44 3
2008 67 31 -
2012 71 27 -
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
Margin State Electoral votes4 Obama Virginia 13
3 Obama Ohio 18
5 Romney North Carolina 15
1 Obama Florida 29
4 Obama National 538
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
2012 Presidential Election
2012 Presidential election In MillionsTotal $ Spent on Television 896
Total $ Spent(Fla Va Ohio) 474
Total $ Spent (NC Col Iowa Nev) 202
Percent Spent in Seven States 84
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
2012 Presidential Voting
2012 presidential voting (by race) Romney Obama
White 88 56
Hispanic 6 14
African American 2 24
Asian 2 4
Other 2 2
Total 100 100
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
2012 Presidential Election
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
1996 to 2012Changes in Party Coalitions
Green Counties voted for Bill Clinton in 1996 but Romney in
2012Orange Counties were Dole in
1996 but Obama in 2012
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
ANGER VS ANXIETY IN THE ELECTORATE
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Obama job approval
APPROVE 48
DISAPPROVE 44
Congress job approval
APPROVE 15
DISAPPROVE 84
Direction of country
RIGHT TRACK 21
WRONG TRACK 68
Obamacare
FAVOR 44
OPPOSE 54
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Vote Preference Among Registered VotersCLINTON TRUMP
ALL 44 46MEN 34 56
WOMEN 52 38WHITES 33 57
NONWHITES 69 2118-29 45 4230-39 50 3540-49 40 4850-64 42 5065+ 46 49
NO DEGREE 38 52COLLEGE GRADS 54 38
WAPOABC POLL ndash MAY 22
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
37
2823
5
2529
23
12
Extremelyenthusiastic
Veryenthusiastic
Somewhatenthusiastic
Not tooenthusiastic
Trump Voters Clinton Voters
There is anldquoEnthusiasmrdquo Gap
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
61 6655
43 42 373529
36
46 51 56
2010 2012 2014 2015 Jan 2016 May2016
Hillary Clinton Image Ratings
Unfavorable
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
50
3121
37 3538
6468
56 58
2005 2011 May 2015 Jan 2016 May 2016
Unfavorable
Donald Trump Image Ratings
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
45
41
37
39
41
43
45
47
Republicans Democrats
Which party could do a better job of dealing with
the economy
Pew 412 ndash 419
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
42
44
37
39
41
43
45
Republicans Democrats
Which party could do a better job of dealing with
immigration
Pew 412 ndash 419
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
46
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with
the terrorist threat at home
Pew 412 ndash 419
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
46
38
30
35
40
45
50
Republicans Democrats
Which party could do a better job of making wise decisions
about foreign policy
Pew 412 ndash 419
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
48
37
30
35
40
45
50
Republicans Democrats
Which party could do a better job of dealing with trade
agreements between the US and other countries
Pew 412 ndash 419
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
CBSNY Times poll(1058 Registered Voters)
OBAMAApproval 48
Disapprove 44
GOPFavorable 28
Unfavorable 66
Do you trust Govrsquot in DC to do what is rightAlwaysMost SomeNever
18 80
Government Should do moreless to solve problems
3954
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
New York (Emerson poll) New York (Siena)
CLINTON 55 52
TRUMP 36 31
Arizona (Merrill poll)CLINTON 38
TRUMP 38
North Carolina (PPP)CLINTON 44TRUMP 42
State polls
Virginia (Roanoke College) Virginia (Gratis)CLINTON 38 45
TRUMP 38 41
Michigan (Detroit NewsWDIV-TV)CLINTON 43
TRUMP 39
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Wisconsin (Rutgers) Wisconsin (Federation for Children) POS (R)CLINTON 46 43
TRUMP 34 31
New Jersey (Rutgers) New Jersey (Quinnipiac) New Jersey (Monmouth)
New Jersey (CBS NewsYouGov)
CLINTON 50 50 CLINTON 45 38 49
TRUMP 36 36 TRUMP 38 34 34
Indiana (NBC)CLINTON 41
TRUMP 48
State polls
New Hampshire (WBURMassInc) New Hampshire (Boston HeraldFPU)CLINTON 44 44
TRUMP 42 44
Oregon (Clout Research (R)CLINTON 42
TRUMP 44
Connecticut (Quinnipiac)CLINTON 45
TRUMP 38
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
State PollsOhio PPP (310) Ohio Quinnipiac Ohio CBSYouGov
CLINTON 45 39 44TRUMP 42 43 39
Pennsylvania(Mercyhurst Univ)
PennsylvaniaQuinnipiac
Pennsylvania (PPP ndashD)
CLINTON 43 43 44TRUMP 35 42 44
Florida Quinnipiac FloridaCBSYouGov
FloridaGravis
Florida(PPP-D)
CLINTON 43 43 45 44TRUMP 42 42 42 45
Georgia (Atlanta Constitution) Georgia (PPP) (D) Georgia (PPP) (D)CLINTON 41 40 38TRUMP 45 49 45
JOHNSON 6STEIN 2
California (Field) California (NBCWSJMarist)
California(HooverGolden State)
CLINTON 53 55 45TRUMP 34 31 33
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
AND THIS JUST IN
BLOOMBERG (JUNE 14)CLINTON 49TRUMP 37
JOHNSON 9SURVEY (JUNE 12
CLINTON 39TRUMP 36
JOHNSON 6STEIN 4
FOX NEWS (JUNE 10)CLINTON 42TRUMP 39
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
AND THIS JUST IN
FOX NEWS (JUNE 10)CLINTON 39TRUMP 36
JOHNSON 12RASMUSSEN (JUNE 9)
CLINTON 42TRUMP 38
REUTERSIPSOSCLINTON 42TRUMP 34
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
DIRECTION OF COUNTRY
BLOOMBERG (JUNE 14)RIGHT DIRECTION 23 (-45)
WRONG DIRECTION 68
RASMUSSEN (JUNE 13)RIGHT DIRECTION 27 (-40)
WRONG DIRECTION 67
THE ECONOMIST (JUNE 10)RIGHT DIRECTION 25 (-42)
WRONG DIRECTION 67
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
2016 Engineering amp Construction Conference
Jon Traub June 16 2016
Tax Policy in 2016 Glass Half Full or Half Empty
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
2015 Extenders Bill
President Obamarsquos FY2017 Budget
Tax Reform
(At Least) Six Sides to Every Debate
End on an Uplifting Note
Contents
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Three takeaways fromthe 2015 extenders bill
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Takeaways2015 tax extenders bill
1 Everybody was a winner (but some were bigger winners than others)
2 The deficit matters (except when it doesnrsquot)
3 Prospects for tax reform are improved (but maybe only on paper)
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
bull The Presidentrsquos budget is due by the first Monday in Februaryhellip but budgets are rarely submitted on time
bull House and Senate Budget Committees are supposed to report their respective budget blueprints by April 1hellip but there is not a penalty for missing the deadline or even not reporting oneminus Establishes a spending ceiling and a revenue floor designed to constrain the budget impact
of subsequent legislationhellip but those restraints are often waived or ignoredminus Covers mandatory (Medicare Social Security etc) and discretionary (defense education
etc) spendingbull House and Senate are supposed to agree on a budget resolution by April 15hellip but
delay is common and there are no penalties for failing to do so though there can be missed opportunitiesminus The budget resolution can be used to make ldquoreconciliationrdquo bills in order ndash valuable to the
majority party because they are not subject to filibuster in the Senatebull House and Senate Appropriations Committees use the budget outline to draft 12
appropriations bills which are supposed to be enacted by October 1hellip but short-term patches and catch-all ldquoomnibusrdquo spending bills are the norm today
bull A separate debt limit constrains overall federal borrowing amounts and must be raised or waived from time to time
The budget process theory and practice
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
President Obamarsquos FY 2017 Budget
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision 10-year Revenue Estimate (2017-2026) $ billion
14 deemed repatriation tax $299419 minimum tax on foreign income $3504Repeal fossil fuel ldquopreferencesrdquo $382$1025 per barrel tax on non-exported oil $3191Limit like-kind exchanges $473Repeal LIFO $813Modify depreciation rules for purchases of corporate jets $31Impose a fee on certain large financial institutions $1114Increase certainty in worker classification (contractor vs employee) $108Reinstate Superfund taxes $223Increase investment income tax rates to 28 (inclusive of 38 NII) $2352Restore estate tax to its 2009 parameters $2018Tax carried interest as ordinary income $193Limit the total accrual of tax-favored retirement benefits $293Buffett Rule (minimum tax rates on wealthy individuals) $375Reduce the value of certain tax expenditures (28 limit) $6455Increase tobacco taxes $1151
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes19 minimum tax on foreign income No No No No No No Yes YesRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes$1025 per barrel tax on domestically used oil No No No No No No No YesLimit like-kind exchanges No No No No No Yes Yes YesLIFO repeal Yes Yes Yes Yes Yes Yes Yes YesModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes YesImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes YesIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes YesIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes YesTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes YesLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes YesBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes YesReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes YesIncrease tobacco taxes No No No No Yes Yes Yes Yes
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
If at first you donrsquot succeedhellipSelected tax increases in WH budget submissions
Provision FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Likely
enactment in 2016
14 deemed repatriation tax No No No No No No Yes Yes No19 minimum tax on foreign income No No No No No No Yes Yes NoRepeal fossil fuel ldquopreferencesrdquo No Yes Yes Yes Yes Yes Yes Yes No$1025 per barrel tax on domestically used oil No No No No No No No Yes NoLimit like-kind exchanges No No No No No Yes Yes Yes NoLIFO repeal Yes Yes Yes Yes Yes Yes Yes Yes NoModify depreciation rules for purchases of corporate jets No No No Yes Yes Yes Yes Yes NoImpose a fee on certain large financial institutions No No Yes Yes Yes Yes Yes Yes NoIncrease certainty in worker classification (contractor vs employee) No No Yes Yes Yes Yes Yes Yes No
Reinstate Superfund taxes Yes Yes Yes Yes Yes Yes Yes Yes NoIncrease investment income tax rates to 28 (inclusive of 38 NII) No No No No No No Yes Yes No
Restore estate tax to its 2009 parameters No No No No Yes Yes Yes Yes NoTax carried interest as ordinary income Yes Yes Yes Yes Yes Yes Yes Yes NoLimit the total accrual of tax-favored retirement benefits No No No No Yes Yes Yes Yes NoBuffett Rule (minimum tax rates on wealthy individuals) No No No No Yes Yes Yes Yes NoReduce the value of certain tax expenditures (28 limit) No No Yes Yes Yes Yes Yes Yes NoIncrease tobacco taxes No No No No Yes Yes Yes Yes No
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
What about broader tax reform
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
1 I truly believe all three of these things are inevitable
2 We donrsquot know when any of them will occur
In what two ways are these three things alike
The Minnesota Vikings win the
Super Bowl Congress passes fundamental tax reform
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
A look at some differential impactsCut the corporate rate by broadening the base
0
10
20
30
40
50
60
70
80
Utilities Construction Manufacturing Information Health care
Selected industriesrsquo share of corporate tax returns and share of certain tax attributes
Corporate returns Depreciation deduction Domestic production deduction RampD creditSource Joint Committee on Taxation
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Itrsquos more than just ldquoclosing loopholesrdquoCut the corporate rate by broadening the base
145177 186
216 220 224 224 231 231 233 242
279294 303
0
5
10
15
20
25
30
35Effective Average Federal Corporate Tax Rate 2007-2010
Source US Department of Treasury Office of Tax Analysis
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
There are at least six sides to every issuehellip
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Continued focus on tax reformHouse Republicans
bull Ways amp Means Chairman Kevin Brady said he planned to move an international-only tax bill in 2016 Tax Policy Subcommittee Chairman Charles Boustany said he hoped to release a draft which would include a 20 corporate rate‒ Few details yet about how such a product would differ from the bill introduced by
former Chairman Dave Camp‒ That effort seems to have stalled the ldquoweaponizationrdquo of trade agreements by 2016
presidential candidates cannot be overlooked as a factor
bull At the same time House Republicans continue working on broader tax reform laying the groundwork for what they hope will be a more amenable climate in 2017 ie a Republican president‒ WampM Chairman Brady leading House taskforce towards tax reform ldquoblueprintrdquo‒ Available evidence suggests the taskforce has more work to do educating members of
the need to make tough decisions in tax reform‒ Strong indications that the blueprint will not have a VAT but will suggest moving the
US toward using consumption rather than income as the tax base (ie moving to expensing in lieu of depreciation)
‒ Blueprint expected before Julyrsquos GOP convention in Cleveland
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Focused more on ldquoflawsrdquo in the tax codeHouse Democrats
bull Some Ways amp Means Democrats seem interested in tax reform and have led the way on discrete parts (eg Rep Richie Neal pairing with GOP Rep Charles Boustany in 2015 to unveil an innovation box)
bull However the general approach of Ways amp Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax codeminus Carried interestminus Inversions and tax benefits available for formerly US-domiciled firmsminus Fossil fuelsminus Etc
bull As the minority party in the House they have an important role to play in drawing contrasts with the majority but rarely see their ideas enacted into law
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
A different approachSenate Republicans
bull Senate Republicans seem less inclined to have big debates on big ideas and instead want to avoid giving Democrats more fodder for campaign ads in key states (especially WI PA NH OH IL)
bull But Senate Finance Committee Chairman Hatch is working on proposal for ldquocorporate integrationrdquo minus Contours still under development but generally expected that it would give
corporations a deduction for dividends paid while requiring all dividend recipients to pay tax on them at ordinary income rates
minus Recipients subject to full tax (ie not at preferred rates) would include not just taxable shareholders but also foreign investors and those individuals who hold stocks in retirement accounts charities and pension funds
minus To avoid favoring debt over equity the proposal is also expected to impose a similar tax regime on recipients of interest payments on corporate bonds
minus At two hearings on the issue so far opposition has arisen from several quarters including retirement plans which worry taking away their tax-favored status will result in fewer Americans being adequately prepared for retirement
minus Prospects for any action are unclear
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Getting ready for 2017Senate Democrats
bull Like his House counterparts Senate Finance Committee Ranking Member Ron Wyden has urged Congress to act in the short term on the issue of inversions
bull Unlike his House counterparts he is also working on a broader vision of tax reform having unveiled one several years ago when he was just a ldquoback-bencherrdquo on the panel
bull This year he has released discussion drafts on two pieces of tax reformminus Streamlining depreciation to move from asset-by-asset tracking to a simplified ldquopoolingrdquo
approach andminus Simplification of the taxation of financial products to provide for mark-to-market
treatment at the end of each year for many of them
bull No action on either is expected this year generally viewed as trying to ldquobe in positionrdquo if Secretary Clinton moves into the White House next year and makes tax reform a priority
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Decides against waiting any longerThe Administration
bull The White House continues to insist legislation is necessary to truly address our flawed international tax regime
bull But unwilling to wait any longer for the Congress to act the Treasury Dept on April 4 released a series of new regulations nominally aimed at curbing corporate inversions (but which in fact have a far wider impact)
bull That was paired with the White House release of an updated proposed business tax reform framework which includes‒ elimination of many deductions and credits‒ 28 corporate rate (25 for manufacturing income) with no corporate AMT‒ 19 minimum tax on foreign earnings and 14 deemed repatriation tax‒ revised (ie slowed) depreciation schedule‒ enhanced incentives for RampD and clean energy investment (but no innovation box)‒ tax compliance simplification for small businesses (but no rate cut)‒ raising enough revenue to cover all reforms and the 2015 extenders package
bull The framework ndash particularly the last bullet above ndash does not appear to be an effort to find common ground with the Republicans in Adminrsquos waning days
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
House Republican
Majority
Senate Republican
Majority
Obama White House
2017 Presidential Campaigns
House Democratic
Minority
Senate Democratic
Minority
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Very different views on how to fix our economyParties at odds
Source POLITICO Caucus November 2015 survey of a bipartisan group of influential political strategists operatives and activists in Iowa New Hampshire South Carolina and Nevada
Democrats
Economic growth 17
Unemployment 2
Republicans
Taxes 10
Deficit reduction
23
Unemployment 2
Economic growth 65
Economic inequality 81
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Trump ldquoBroaden the base lower the raterdquo variationPresidential contenders further muddy the waters
Mr Trump
Top Corporate Rate 15
Apply to Passthroughs Yes
Full Expensing No
Limit Interest Deduction Yes
International Repeal deferral
Deemed Repatriation (Rate) Yes (10)
Top Individual Rate 25
Top Rate Threshold for Couples $300000
Cap Gains Dividends 20 top rate
Carried Interest Ordinary income
Standard Deduction $25000$50000
Itemized Deductions Maintain charitable and mortgage interest deductions tighten Pease limitation
Revenue Impact Tax FoundationTax Policy Center
-$12 trillion-$101 trillion-$95 trillion
Source 10-year staticdynamic estimate from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimate from the Tax Policy Center
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Democrats A different definition of ldquotax reformrdquoPresidential contenders further muddy the waters
Sec Clinton Sen Sanders
Corporate Taxes Establish tax credits for profit-sharing and apprenticeships
New 62 health care payroll tax on employers repeal certain energy tax incentives
FinancialTransactions
Establish tax on certain high-frequency transactions
New financial transactions tax at 0005-05 rate with offsetting tax credit for low-income households
InternationalRevise rules to prevent corp inversions impose ldquoexit taxrdquo on inverting companiesrsquo unrepatriated
earnings
End deferral limit foreign tax credits revise rules re corp inversions and foreign corporations
operating domestically
Individual TaxesImplement Buffett Rule minimum 30 rate on
those earning gt$1 million 4 ldquofair sharerdquo surcharge on income gt$5m
Establish 4 new brackets of 37 43 48 and 52 top rate on income gt$10m increase rate on
other brackets by 22 apply Social Security payroll tax to earnings gt$250000 new 002
payroll tax for employees
Cap Gain Dividends
Raise top rate on cap gains to 434 (holding le2 years) gradually reduced to 238 (holding gt6
years)
Tax at ordinary income rate for those earning gt$250000 increase net investment income (NII)
surtax to 10Carried Interest --------------- Ordinary income ---------------
ItemizedDeductions Limit tax benefit to 28 of deduction
Limit tax benefit to 28 of deduction eliminate personal exemption phase-out (PEP) and Pease
limitationEstate Tax Increase top rate to 45 lower exclusion to $35m Increase top rate to 65 lower exclusion to $35m
Rev Impact TF Tax Policy Center
$498 billion$191 billion$11 trillion
$136 trillion$98 trillion$153 trillion
Would apply only to top-bracket taxpayers includes 38 net investment income tax Source 10-year staticdynamic estimates from the Tax Foundation based on its Taxes amp Growth model and 10-year static estimates from the Tax Policy Center
Letrsquos end on an uplifting note
Letrsquos end on an uplifting note
Questions
- 2016 Engineering amp Construction Conference
- Lunch and General SessionEconomic amp Tax Perspectives
- Global economic outlook 2016 is being shaped by the same three big trends that shaped 2015
- Low oil prices create many winners and losers
- The rising value of the dollar challenges US exporters but helps US consumers and countries that import to the US
- The world is adjusting to a slower growing China
- So with these trends in place what is happening to US GDP growth
- How are these trends shaping US growth
- How are these trends shaping US growth
- Rise in real consumption is partially attributable to lower prices of oil and imports but also to increased employmenthellip
- But the gains are not evenly distributed
- How are these trends shaping US growth
- The contraction in business investment in the 1st quarter of 2016 was caused by continued contraction in mining structures (shafts and wells) and a decline in equipment investment
- Slow productivity growth limits growth
- Where have the construction gains occurred
- Where have the construction gains occurred
- How are these trends shaping US growth
- Exports will continue to be a weak component
- The slow growth story isnrsquot just China
- Bottom linemdashabsent a major shift with the same factors as last year in place we should see similar resultsBut what are some things that could cause a change in outlook
- 2016 Engineering amp Construction Conference
- Polarization
- Map Maryland 3rd
- Map Illinois 4th
- Map Maryland 2nd
- Map Pennsylvania 7th
- Government regulation of business usually does more harm than good
- Stricter environmental laws and regulations cost too many jobs and hurt the economy
- Table1 feeling about democratic and republican parties by decade
- The incredible shrinking middle
- US House of representatives
- US House of representatives (cont)
- US House of representatives (cont)
- US House of representatives (cont)
- US Senate
- US Senate (cont)
- US Senate (cont)
- US Senate (cont)
- Slide Number 39
- Slide Number 40
- 2016 Senate Races
- Republican Senate Pickups 2014 Elections
- The Cook Political Report
- New Senate breakdown by presidential voting
- Increasing minority vote
- Increasing minority vote
- 2012 Presidential (States Decided by 5 or less)75 Electoral Votes in Four Swing States
- 2012 Presidential Election
- 2012 Presidential Voting
- 2012 Presidential Election
- 1996 to 2012Changes in Party Coalitions
- ANGER VS ANXIETY IN THE ELECTORATE
- Slide Number 53
- Slide Number 54
- Slide Number 55
- There is anldquoEnthusiasmrdquo Gap
- Hillary Clinton Image Ratings
- Donald Trump Image Ratings
- Slide Number 59
- Slide Number 60
- Slide Number 61
- Slide Number 62
- Slide Number 63
- Slide Number 64
- Slide Number 65
- Slide Number 66
- Slide Number 67
- Slide Number 68
- AND THIS JUST IN
- AND THIS JUST IN
- DIRECTION OF COUNTRY
- Slide Number 72
- 2016 Engineering amp Construction Conference
- Contents
- Slide Number 75
- 2015 tax extenders bill
- The budget process theory and practice
- Slide Number 78
- If at first you donrsquot succeedhellip
- If at first you donrsquot succeedhellip
- If at first you donrsquot succeedhellip
- Slide Number 82
- In what two ways are these three things alike
- Cut the corporate rate by broadening the base
- Cut the corporate rate by broadening the base
- There are at least six sides to every issuehellip
- Slide Number 87
- House Republicans
- Slide Number 89
- House Democrats
- Slide Number 91
- Senate Republicans
- Slide Number 93
- Senate Democrats
- Slide Number 95
- The Administration
- Slide Number 97
- Parties at odds
- Presidential contenders further muddy the waters
- Presidential contenders further muddy the waters
- Slide Number 101
- Slide Number 102
- Slide Number 103
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