Friday afternoon the House Ways and Means Committee Chairman Kevin Brady (R-Texas) delivered the keynote address at the International Tax Policy Forum (ITPF) and Georgetown University Law Center's Institute of International Economic Law (IIEL) Conference on tax competition. The entire speech is attached.
Here are some excerpts from the speech:
No longer will America be sitting on the sidelines with the highest corporate rate in the world. Instead, we're proposing a corporate rate of 20% - a rate that gets us into the game in a major way. For small businesses, no longer will you be taxed under the individual side of the code at rates as high as 44.6%. Instead, our Main Street job creators will be taxed at a top rate of no more than 25% so they can keep more of their income and reinvest it in growing their businesses, hiring new workers, and raising wages.
…This policy - sometimes referred to as border adjustability - is how all of our foreign competitors implement their VAT taxes. But, unlike our foreign competitors, this is not a VAT. Also, unlike our current tax system, it's not an origin-based business income tax. This is a smarter, simpler destination-based cash flow tax that is far more pro-growth. And, with it, we will level the playing field. No longer will foreign imports have an advantage over 'Made in America' products here in the United States. Instead, all products will be taxed equally.
The Chairman also answered questions from the audience. Here are some excerpts from his answers:
On the WTO retaliating against the border adjustability provision:
I think talk of a trade war is silly. Frankly, what will they complain about? Stop copying us? Stop border adjusting your taxes as we do?
On taxing pass-through business:
All non-C-Corps will be taxed at that lower rate...Keeping it [the tax rate on pass-throughs] tied to the individual rate makes it incredibly difficult to lower those [pass-throughs] rates enough to be competitive. So that's why we took the approach of splitting out wage income from business income.
On working with the White House on the border adjustability provision:
We started in a very good place in that President Trump's tax reform plan was 80 percent in common with the Republican plan… We have had a lot of good discussions with both President Trump, Vice President Pence and the Trump team on every provision in the Blueprint. I see the common ground growing more and more each day.
On transition rules:
I've assured them [the import business community], look these are bold changes. We don't expect industries to change on a dime; a lot has been put into business models. So we know where we're going and [where we're] going to end up, and we're listening carefully to the transition to get there. Because, again, the more I learn about these models, these contracts, these supply chains…the more confident I am that we can design this [border adjustability] provision, and the transitions, to be extremely pro-growth…whether you are an exporter or an importer.
Here is a link to a video of the speech.
Paul Ryan edited the trade section of Trump's Philly speech, according to Axios. Backstage at the Republicans' retreat in Philly last week, House Speaker Paul Ryan read over Trump's speech and edited a section on trade, they state. One source said that Ryan was helping Trump to "better explain" the border adjustment tax plan. Ryan's move paid off: Fox noted that Trump appeared to be inching closer towards the House GOP tax reform plan.
This matters because Ryan is convinced he needs the border adjustment, a hike in import taxes and reduction on exports that could raise $1.2 trillion, to pay for major tax cuts. Persuading Trump to become a full-throated supporter of border adjustment is crucial to the Speaker's position, Axios contends.
Here we see something that I have been discussing all along. Many, in the Media, keep stressing the infrastructure build-out as a stand-alone item. They just assume, and it is the Democrat's proposal, that the money is spent without some kind of off-setting hike in revenues. It seems clear that Mr. Ryan's viewpoint is far different so that the $1 trillion dollars + to be spent on infrastructure will not be adding to the U.S. debt and therefore cause a spike in interest rates, if his proposal is initiated. Given that the Republicans control both the House and the Senate it would be wise, in my opinion, to factor this into your thinking.
The Journal of Accountancy states that American corporations hold $2.5 trillion in off-shore cash and investment. They go one to say that,
A plan proposed by Rep. Paul Ryan, the Republican speaker of the House of Representatives, would tax accumulated foreign earnings at a rate of 8.75% on cash and cash-equivalent profits and 3.5% on other profits, with the tax spread over eight years. Then the United States would move to a territorial system, with a 100% exemption from tax for dividends from foreign subsidiaries.
Taken alone, this would be a huge positive for many American corporations, in my estimation, and also for the tax revenues of the United States. This part has been bandied about in the Press with some frequency. Second stage thinking takes us to another level, however. This would also be a huge "negative" for many European banks where the bulk of the money is now being held. The amount is so large that any repatriation, especially a quick one, could have a severe impact on the Capital Ratios of a number of European Banks.
I think the repatriation will be forthcoming and soon. I would be giving serious consideration to your holdings of European bank debt and equities now. Their future is already seriously fuzzed, in my estimation, given the pending elections in the Netherlands, France and possibly Italy. Any major deterioration in their capital base could exacerbate the situation and very quickly.
I would be paying attention here!
Do stuff, be clenched, curious. Not waiting for inspiration's shove or society's kiss on your forehead. Pay attention. It's all about paying attention. Attention is vitality. It connects you with others. It makes you eager. stay eager.