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[Video] Tax reform

What is the outlook so far?

Watch Bloomberg TV interview Jonathan Traub, managing principal, Deloitte Tax LLP on the future of tax reform.

Watch the interview

Bloomberg Markets: Americas | April 6, 2017

I am Vonnie Quinn. President Trump has touted tax reform as one of his central domestic priorities, but how realistic is real tax reform? Yesterday, I asked Jonathan Traub, former minority chief tax counsel. He currently manages tax policy at Deloitte.

Jonathan: I am not super confident it will be enacted this year. Congress will work very hard at it. It is long overdue. Our high tax rate is not sustainable. Our multinational business tax rate is really antiquated. Tax reform is a very difficult process, which is one of the reasons we have not seen it done and more than three decades.

Vonnie: Why is it so difficult when the republicans control all three parts of government and are in general agreement about the need for curbing taxes at least?

Jonathan: Well, there is need for reform, but to do it in the way republicans envision, you need to come up with a number of base brought a nurse or revenue increases to offset the cost of providing lower rates, and all of the tax benefits in the code that exists today have built up constituencies around them to support those provisions, so chipping away at them, as is necessary to do, revenue-neutral tax a form requires going to the sacred house.

Vonnie: What might be the easiest wants to get rid of? Do you see any? You must've gone through this with a fine tooth come.

Jonathan: Sure. There is not much that is easy. There is not a lot of low-hanging fruit out there. One that many people view as most likely for targeting is around section 199 for manufacturing, to provide a lower tax rate for tax income, that is one of the lowest hanging items out there.

Vonnie: What about the border tax? It has become a political football. Is it dead?

Jonathan: I don't think it is dead. I think you're right that it has become a political football. To this point, Vonnie, opponents have done a better job of mobilizing their allies in congress and have the supporters, but we are in the very early stages of a very long game, and I think it is way too soon to declare anything dead.

Vonnie: Where does the white house stand if you get the impression on tax reform?

Jonathan: Often times when the president speaks, he pivots to talking about tax relief, and tax relief is something very different than tax reform. Reform, as envisioned by leaders in congress, is transformational, it is permanent, it makes major structural modifications in how we tax businesses and individuals, and tax relief is more aligned to being temporary tax cuts that would expire after a handful of years. Whether the president embraces full reform or more traditional tax relief is something I think a lot of eyes are waiting to see an answer to.

Vonnie: Is there a middle ground here? Is there something like a temporary cut or, you know, a repatriation holiday or something like that that might bridge the gap between permanent reform and what we have now?

Jonathan: I think it is hard to do a half measure. I think on and the white house needs to decide if they want to go for the gold,—I think congress and the white house need to decide if they want to go for the gold, or if they want half measures like a temporary cut in rates. I'm not sure if there is a way to do it halfway here and halfway there.

Vonnie: Of course the continuing resolution comes up first, and the funding of the government and the deadline for that is April 28. We have to get past that date before we can consider anything real on tax reform.

Jonathan: I think you have memories of congress who are able to walk and chew gum at the same time, so yes, the government needs a continuing resolution to keep themselves open after the 28th of April, but the tax writers in Washington are not appropriators. I think those can proceed on parallel tracks.

Vonnie: Just to take the corporate tax for a moment, companies—Jamie Dimon is the latest to complain, from J.P. Morgan—complain that taxes are too high, and for many corporations, it may not be advantageous for taxes to be cut. Even President Obama wanted the corporate tax rate cut to 28 percent at one time. What do you see happening on the corporate tax front?

Jonathan: Any corporate or firm is likely to—any permanent reform is likely to include a corporate tax. The plans that house tax writers are looking at that would take the corporate rate down to 28 percent, without the border tax, the rate would be slightly higher than that, I think.

Vonnie: Last question—who has the most sway when it comes to the republicans? Obviously, the of administration—but is it Paul Ryan, Kevin Brady, the freedom caucus able to veto anything that the rest comes up with?

Jonathan: I think all eyes are at the white house right now, waiting to see what President Trump embraces. I think his seal of approval on the tax plan will go a long way to dealing with whether it is a plan that can get a majority of support out of the house and the senate, and until we know where the white house will come down on some of the most contentious issues and reform, I think that is the marker I am more looking forward to seeing.

Vonnie: That was Jonathan Traub.

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