|US Tax Reform
Big 6 is a new entry this year
The proposals to overhaul the US tax system are advancing
quickly and will be a triumph for President Donald Trump and
his administration if they are passed by Congress by December
31 2017 as planned. The significance of the work undertaken by
his sextet of policymakers, and the long-term impact of their
plans, means International Tax Review has awarded them
the top spot in this year's Global Tax 50.
The Big Six is composed of Secretary of the Treasury Steven
Mnuchin, National Economic Council Director Gary Cohn, Senate
Majority Leader Mitch McConnell, Senate Finance Committee Chair
Orrin Hatch, Speaker of the House of Representatives Paul Ryan,
and House Ways and Means Committee Chair Kevin Brady.
Trump had made US tax reform an integral part of his
presidency election campaign and its success is crucial to his
credibility and the reputation of the Republican Party
– particularly after the Republicans were defeated on
the healthcare bill.
The Big Six unveiled the proposed Tax Cuts and Jobs Act for
the largest overhaul of the US tax code on September 27. The
swift approval of the proposals by the House of the
Representatives came only two weeks after it was unveiled.
With 277 Republican votes, the Big Six's 400-plus-page
legislation is seen as the greatest opportunity to achieve a
key objective of the US government. "This vote is a big step
forward – but it is not the last step. We will
continue to strengthen this legislation and, working with the
Senate, we will put tax reform on the President's desk by the
end of the year for the first time in 31 years," Brady said
after the bill was passed in the House on November 16.
At the time of writing, the House had agreed on its version
of the tax reform bill and the Senate Budget Committee had
passed it too, turning attentions to the Senate floor where a
win for the Republicans will be a tough challenge*. The two
versions of the tax bill laid out by the House and Senate will
eventually be merged into one piece of legislation for
enactment. However, achieving an agreement between the House
and Senate by the end of 2017 is a tall order – and
ITR expects Congress to still be debating the finer
details into next year.
The bill is said to deliver a 21st century tax code that
will provide tax relief for businesses, end incentives to move
jobs, capital and tax revenue overseas, and broaden the tax
base by removing tax breaks and closing loopholes.
For businesses, the main deliverables of the draft Tax Cut
and Jobs Act include moving to a territorial tax system,
reducing the corporate tax rate to a flat 20% rate (25% for
personal services corporations), introducing deductibility
limits of net interest expenses to 30% of a business's adjusted
taxable income, amending the taxation of foreign income, and
introducing an excise tax on certain payments from domestic
corporations to related foreign corporations.
The proposed move to a territorial tax system would realign
the US with the rest of the world and be of great influence in
the international tax arena. By adopting a territorial system,
which would allow US companies to not pay US tax on dividends
earned from foreign subsidiaries, the US could keep its own
rate for profit generated in the country at any level without
affecting the taxation of foreign profit. It would also
discourage corporate inversions. Also, the anti-BEPS measures
are largely aligned with the work of the OECD on interest
deductibility in the BEPS package on Action 4 –
another progressive step forward by the Big Six.
Whether these remain in the final legislation will be
determined by its support from lawmakers, however.
Notably, the House of Representatives has agreed on the
implementation of a 20% corporate tax rate in 2018, but the
Senate wants to impose the reduced rate by 2019. The debate
surrounding these discrepancies could be what holds up
For such a historic reform package, the process of unpicking
the Big Six's legislation to reach a final agreement and enact
the much anticipated tax reform plan will have a lasting
influence on the tax world. Everyone's eyes are now on the US,
waiting to see if it can deliver its promise for change
– or if it will fail.
*Facts correct as of November 11 2017.