Deloitte Family Office Conferenceevents.deloitte.com/Houston/presentation_11_15.pdf · 2016-11-18 · Deloitte Family Office Conference Politics and Priorities for 2016 and Beyond

Deloitte Family Office ConferencePolitics and Priorities for 2016 and Beyond

Deloitte Tax LLP’s Private Wealth practice presents

November 15, 2016

The Briar Club2603 Timmons Ln.Houston, Texas 77027

10:30 a.m. –11:00 a.m. Registration and networking

11:00 a.m. –11:30 a.m.

Delightfully DismalSamuel Rines, Avalon Advisors

11:30 a.m. –12:00 p.m.

Cyber Risk AwarenessScott Brooks, Deloitte Cyber ThreatManagement Practice

12:00 p.m. –12:15 p.m. Lunch and networking

12:15 p.m. –1:30 p.m.

Legislative Tax Updates Storme Sixeas and Doug Robb of the Washington National Tax practice

Agenda

1

Delightfully DismalThe US Economy in the Long-run

2

Theories on Slow Economic Growth Abound

Delightfully Dismal

2

Three Competing Theories to Describe the Recent and Current Economic Experience:

• Secular Stagnation from Larry Summers (originally Hansen in 1930s)—too much savings, too little investment, too much debt involved in faster growth. Solution? Fiscal Stimulus.

• Ben Bernanke’s theory of a savings glut—trade imbalances caused China and emerging markets to build a bubble in US asset markets. Partially a reaction to the Asian Financial Crisis.

• Paul Krugman’s theory of a liquidity trap—unlikely the primary reason, though may have some relevance.

Instead of looking at explanations for past events, this presentation will concentrate on the future of the US economy in broad strokes, including a few of the headwinds and tailwinds to economic growth.

3

Growth Has Been Parabolic

Delightfully Dismal

3

Global Growth has gone parabolic in the last century.

Much of this is due to a boom in population.The remaining is innovation and the resulting productivity gains.

Is this a sustainable trend?

4

Robert Gordon: “It’s Over. It Only Happens Once… And It Already Happened.”

Delightfully Dismal

4

Source: Robert Gordon (2012) “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds”

5

Slow Growth Doesn’t Appear Slow (But It Does Feel Slow)

Delightfully Dismal

5


Putting economic growth into context.

What does it mean for the average household? GDP per capita growth slows, but does not come to a halt.

Does the chart to the right look that bad?

Not really.

6

Why Does It Appear Good and Feel Bad?

Delightfully Dismal

6


This does not imply a complete collapse of growth.

But it does indicate a protracted slowing of US growth over the next half century.

The differential is about $125,000 per year per capita.

7

So, What Is Happening? “It’s Over” Because…

Delightfully Dismal

7


8

Six Reasons for the Slowdown

Delightfully Dismal

8

1. Demography—The US and the rest of the developed world face this hurdle. Slower gains in life expectancy.

2. Education—Much of the (easy) upside from education attainment has been made in the US.

3. Inequality—This causes slower growth due to lower spending levels.

4. Globalization—China’s ascension to the WTO only happens once.

5. Energy/Environment—The environment may cause a further slowing due to need to sustain it.

6. Overhang of Consumer and Government Debt—Consumption in the US (both civilian and government) has been in large part financed since the conclusion of World War II.

9

Other Factors: The Rate of Innovation May Be Slowing.

Delightfully Dismal

9

10

Technology Spreads Through the Economy Rapidly

Delightfully Dismal

10

Waiting for a bounce from recent technological innovations may be a fools errand. Much of it has already been adopted.

The results of the internet are probably already in the data.

Why such a little bounce?

Gordon’s Paradox: Would you rather live without running water or an iPhone?

11

Modern Productivity Growth is Cyclical and Volatile. Innovation Is Dispersed Quickly.

Delightfully Dismal

11

12

The Economist on Demographics and Innovation

Delightfully Dismal

12

The Economist summed it up well: “There will be more innovation—but it will not change the way the world works in the way electricity, internal-combustion engines, plumbing, petrochemicals and the telephone have.”

“Life expectancy at birth in America soared from 49 years at the turn of the 20th century to 74 years in 1980. Enormous technical advances have occurred since that time. Yet as of 2011 life expectancy rested at just 78.7 years.”

“These are the sort of gains that countries saw from adding women to the labour force in greater numbers and increasing workers’ education.”

13

A New Hope: The US Has Advantages That Cannot be Mimicked

Delightfully Dismal

13

While demographics will not be the tailwind of the previous half-century for the US, demographics are far better than the rest of the world.

14

Population Cannot be Mimicked

Delightfully Dismal

14

The US has less bad demographics than most of the developed world.

Demographics are fairly predictable.

China’s demographics may be a formidable hurdle to global economic growth.

However, India’s demographics could be a boon to global growth.

15

Innovation Immigration Advantage Is Significant

Delightfully Dismal

15

The US imports a substantial amount of innovation in the form of immigrant inventors.

There is a 10x difference between the US and second place Switzerland.

Fink, C, E Miguélez, and J Raffo (2013), “The global race for inventors”

16

Manufacturing’s Natural Tendency

Delightfully Dismal

16

Manufacturing employment naturally rises and falls as a country’s income increases.

The US economy has followed the typical pattern of less manufacturing as it matures.

As per capita income increases, manufacturing declines. As incomes in China and India continue to rise, the process of switching from manufacturing to services will mimic US experience.

17

The Other Challenge To Spurring Growth: Automation Self-Driving Truck Example

Delightfully Dismal

17

Common middle-class job with a significant implication for how the US economy will unfold.

18

Slow Growth Is Not Negative, It’s Boring

Delightfully Dismal

18

JW Mason “What Do Changing Estimates of Potential Output Tell Us?”

19

What Does All of This Mean?

Delightfully Dismal

19

Interest rates for the better part of 20th

Century were abnormally high.

“Long-term rates” not far from averages of the pre 20th Century Bubble.

As innovation surged, so did inflation and interest rates.

Going forward, longer-term interest rates should remain relatively low given the aforementioned headwinds. Short-term rates more volatile.

20

The World Is Different and Monetary Policy Will Be As Well

Delightfully Dismal

20

Fed Chair Yellen’s speech in Jackson Hole, WY laid out the Fed’s game plan for the next recession.

In Yellen’s example, the fed funds rate will remain an important tool, but the balance sheet (buying assets) will become a conventional instrument to execute monetary policy.

Now, Fed policy is more of a wildcard. With the Chair up in 2018 and multiple Fed presidents to appoint, the new administration will have significant influence over how monetary policy evolves.

21

Is It A Return to the “Historical” Normal?

Delightfully Dismal

21

As Gordon postulates, growth will be scarce in this environment. But there will be pockets of growth (examples: Silicon Valley, Texas shale, and so on).

Slower growth does not grow bubbles... quickly.

Demographics, innovation, and productivity will become increasingly important parts of investment decisions.

A return to sub-1% growth is (probably) too pessimistic.

22

Samuel Rines—Senior Economist and Portfolio [email protected]

Cyber Risk Awareness

Presentation

Scott BrooksDeloitte Cyber Threat Management Practice

Source: Verizon 2013-14 Data Breach investigations Report

The frequency of cyber attacks is steadily increasing…Attackers have a limitless number of attempts to compromise your defenses, but it only

takes a single weakness on your part for them to get in

~80%

Breaches in 2014 were by external threat actors1

55%

Incidents in 2014 involving privilege abuse by internal actors1

86% organizations in the finance industry suffered at least one potential data loss event in 20144

1 Verizon data breach investigation report 20152 Ponemom cost of data breach study 2015 CheckPoint 2015 Security Report3 http://www.nytimes.com/2014/03/14/business/target-missed-signs-of-a-data-breach.html?_r=04 CheckPoint 2015 security report5 Mandiant M trends 2015

$3.79 millionAverage total cost of data breach in 11 countries 2

Average cost per lost or stolen record 2$154

Average number of days a company in US takes to resolve cyber attack 3 45

95% of web app attacks used stolen credentials1

Who found the incident5

69% - external entity

31% - internally

60% In 60% of cases, attackers are able to compromise an organization within minutes1

Breaches are a multi-faceted problem.. Any one-dimensional attempt to describe them fails to adequately capture their complexity

Rapid adoption of technology and increased connectivity has expanded the traditional borders of companies – creating multiple new entry points for IT and Control Networks

Organizations are spending more money and paying more attention

than they ever have …

… but for many the problem seems to be getting worse

$71 billionOrganizations spent

on information security in 2014according to Gartner

The most common answers focus on the “adversary” … who is increasingly determined and sophisticated …

and the view that adversaries are well funded … often by organized crimeand in some cases might even be “state sponsored”

cyber attackers are increasingly targeting assets of valueincluding process control systems

But this is just one side of the coin …

We have connected our economy and our societyusing platforms designed for sharing information … which means people are the best line

of defense

… the best protection starts with our employees, business partners and contractors

Being VIGILANT

means having threat intelligence and situational

awareness to anticipate and identify harmful behavior.

Being RESILIENT

means being prepared and having the ability to recover

from cyber incidents and minimize their impact.

Being SECURE

means having risk-prioritized controls to defend critical assets

against known and emerging threats.

Detecting and monitoring what happens beyond the bounds of the fortress becomes an essential security capability…

As your employees and your company adopt new ways of working, security needs increasing focus, creativity, and agility to keep up…

This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2016 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu Limited

Tax Policy & Politics:A Glass Half Full or Half Empty?Storme Sixeas, Washington National Tax

Copyright © 2016 Deloitte Development LLC. All rights reserved. 2

$6.6 billion* later…* Estimated cost of 2016 federal campaigns, according to the Center for Responsive Politics


• Despite a clear electoral win, President-elect Trump seems to have a strong mandate for “change” but not necessarily for his agenda, especially since the campaign was light on policy

Election 2016 – a few initial observations


One-third of Americans didn’t like their choices this yearA mandate for the President-elect?

Favorable view of Trump,Unfavorable view of Clinton

24%

Favorable view of Clinton,Unfavorable view of Trump

33%

Unfavorable view of bothClinton & Trump

35%

Favorable view of both Clinton & Trump

2%No opinion

6%Source: Monmouth University Poll, Aug. 25-28, 2016



• The new President will confront a Congress with sharp divisions and its own agenda(s) and political dynamics



The Senate Story - 2016




• Expected incoming Senate Democratic Leader Chuck Schumer is more open to tax reform than outgoing Democratic leader Harry Reid. However, Schumer faces a daunting map for 2018 and a potentially expanding rift between the progressive and more moderate members of his caucus



2016: A good map (on paper) for Democrats; 2018: A very different story

Senate Seats Contested In 2016 Senate Seats To Be Contested in 2018




• Expected incoming Senate Democratic Leader Chuck Schumer is more open to tax reform than outgoing Democratic leader Harry Reid. However, Schumer faces a daunting map for 2018 and a potentially expanding rift between the progressive and more moderate members of his caucus

• In the House, Republicans saw the size of their majority reduced slightly, from 246-186 to 238-193 (with 4 races outstanding)

• This governing challenge will be made greater because almost none of the members leaving Congress at the end of this session are from the cohort typically reluctant to follow leadership’s chosen strategy



Who is returning to the House GOP next year?The math won’t get easier

Note: The 2015 votes included Omnibus spending, Tax extenders, Long-term highway bill, Ryan for Speaker, Debt ceiling, Continuing Resolution (9/30), Trade Promotion Authority, Budget Resolution, Doc Fix, Short-term DHS fundingSource: Voting data compiled by Bruce Mehlman, Mehlman Castagnetti, and Deloitte Tax LLP

136

94

14

118

80

13

Loyalists (8-10 YES votes) Maybes (4-7 YES votes) Reluctants (0-3 YES votes)

2015 2017

Plus at least 26 new GOP Members whose voting patterns will take time to come into focus


Setting the stage for 2017: The big picture


Red ink falling but for how long?

0

2

4

6

8

10

12

% o

f G

DP

Budget Deficits as a Share of GDP

Source: Congressional Budget Office, Updated Budget Projections: 2016 to 2026 (Mar. 2016), The 2016 Long-Term Budget Outlook (Jul. 2016)

50-year average (1966-2015)2.8%



0

2

4

6

8

10

12

% o

f G

DP



50-year average (1966-2015)2.8%



0

2

4

6

8

10

12

% o

f G

DP



50-year average (1966-2015)2.8%


Automatic spending has taken over the budget

Source: Congressional Budget Office (CBO)

34%

66%

1965

68%

32%

2015

78%

22%

2026 (projected)

Mandatory spending+ net interest

Discretionary spending


How much revenue should the government raise?

Note: “Revenue baseline” assumes current laws remain unchanged (e.g., expiring tax cuts lapse as scheduled). Senate Democrats’ figures represent the CBO baseline adjusted upward by the annual revenue increases proposed in the Senate Democrats’ FY2014 budget (proposed increase was $923 billion relative to then-current law).Source: Congressional Budget Office (CBO) publications Updated Budget Projections: 2015 to 2025 (August 2015) and Updated Budget Projections: 2016 to 2026 (March 2016)

17.6

17.8

18.0

18.2

18.4

18.6

18.8

19.0

19.2

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

% o

f G

DP

Revenue Baseline Projections

CBO Revenue Baseline - August 2015Senate Democrats' Revenue BaselineCBO Revenue Baseline - March 2016


A lower revenue target allows for:

1. more rate reduction,

2. less base broadening, or

3. a combination of both

Why it matters for tax reform“Merging baselines”

Tax Base x Tax Rate = Revenue


Why it matters for tax reform“Merging baselines”

Tax Base x Tax Rate = Revenue

Simplified example:• Assume the corporate tax base is $12.6 trillion over the next decade, meaning a 35% tax rate

generates about $4.4 trillion of revenue• If our revenue target is reduced by $500 billion to $3.9 trillion ($4.4 – $0.5), then the necessary tax

rate is only about 31% (12.6 x .31 = 3.9) – with the tax base staying the same• Or, if the goal is to keep the tax rate at 35% but to let revenue fall to $3.9 trillion, then the tax base

can be narrowed (by giving more credits and deductions) by almost $1.5 trillion (11.14 x .35 = 3.9)

$12.6T 35% $4.4T

$3.9T31%$11.14T x

x

=

=


Setting the stage for 2017: Summarizing the Trump Tax Plan


Business taxesTrump tax plan

Corporate Rate 15%

Pass-through Rate 15%, but unclear to which entities and income it applies/other restrictions

Corporate AMT Eliminate

Full ExpensingUS manufacturers may elect full expensing or interest deductibility; election irrevocable after 3 yearsInterest

Deduction

International• No changes currently specified to current regime (2015 plan called for retaining

current-law worldwide regime and foreign tax credit but repealing deferral)

• Deemed repatriation at 10% tax rate


Business taxesTrump tax plan

Financial Products & Institutions Phase out deferral of inside build-up on life insurance contracts for high earners

Energy No change specified, but has called for repeal of most business tax expenditures except R&D credit

Employer-Provided Childcare

• Increase credit cap to $500k

• Shorten recapture period to 5 years

Other• Repeal Affordable Care Act and all related taxes

• Eliminate most business tax expenditures except R&D credit


Individual taxesTrump tax plan

Individual Rate• New brackets: 12% on <$75k; 25% on $75k-225k; 33% top rate on >$225k

• Eliminate 3.8% net investment income tax

Capital Gains /Dividends 0% on <$75k; 15% on $75k-225k; 20% top rate on >$225k

Carried Interest Tax as ordinary income

AMT Eliminate

Deductions

• Standard deduction $15k/$30k

• Cap itemized deductions at $200k/$100k

• Eliminate personal exemptions and head of household


Individual taxesTrump tax plan

Estate & Gift Tax

• Eliminate, but capital gains held until death subject to tax, with first $10m tax-free (unclear whether this is per person or per couple)

• Disallow “contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives”

New Tax Benefits

• Deduction for childcare (avg. state cost) and eldercare (inflation-adjusted $5k cap), for those with income <$500k/$250k

• Refundable childcare credit for EITC recipients

• Dependent Care Savings Accounts with 50% govt match for low-income families


Revenue estimatesTrump tax plan

Tax Policy CenterStatic estimate • 10-year revenue effect = -$6.2 trillion

Tax Policy CenterDynamic estimate

• 10-year revenue effect = -$6 trillion• 10-year GDP impact = -0.4%

Tax FoundationStatic estimate* • 10-year revenue effect = -$4.4 trillion-$5.9 trillion

Tax FoundationDynamic estimate*

• 10-year revenue effect = -$2.6 trillion-$3.9 trillion• 10-year GDP impact = +6.9%-8.2%

Most impactful provisions:• Corporate rate reduction• Individual rate reduction• Repeal of net investment income tax

* Ranges provided because of uncertainty about application of pass-through tax rate


Congress will also want to be heard on tax policy…

And it won’t be with one voice


House Republicans

Senate Republicans

Obama Administration

House Democrats

Senate Democrats


Continued focus on tax reform for growthHouse Republicans

• House Republicans released a tax reform “blueprint” on June 24, showing where they want to take the debate

• Primary focus: policies designed to create economic growth‒ At every juncture, when forced to choose between two options, the

answer is “whichever the economists believe will boost GDP most”‒ Poses interesting trade-offs, most notably by moving to full expensing

while repealing the deduction for net business interest expense

• Stated goal to be revenue neutral relative to the current policy baseline and when scored dynamically, but outside estimates vary greatly and require many assumptions due to lack of legislative text‒ Tax Foundation estimates $191 billion/10-year cost, with GDP 9.1%

higher over that period‒ Tax Policy Center estimates $2.1-3 trillion/10-year cost, with change in

GDP of 1% or less• With Republicans also controlling the White House and Senate next year, House Republicans can be

expected to press hard for tax reform


Why the House GOP is focused on “growth”

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%

What is the most important economic issue driving the 2016 presidential campaign?


Blueprint summaryHouse Republicans

Business Tax

• 20% corporate tax rate; 25% rate on pass-through business income

• 100% expensing (rather than depreciation); repeal deductibility of business interest

• Repeal corporate AMT

• R&D credit and LIFO retained; most other business tax credits and deductions assumed to be repealed

International Tax

• Full territorial system (no tax on repatriation of future foreign profits)

• Transition rule that has a deemed repatriation of past foreign profits (8.75% rate on cash and cash equivalents; 3.5% rate on everything else; payable over eight years)

• Border adjustable, which the blueprint says will obviate the need for most base erosion safeguards


Blueprint summaryHouse Republicans

Individual Tax

• Reduce seven tax brackets down to three – 33%, 25%, and 12%

• 50% exclusion for investment income (capital gains, dividends, interest)

• Combine and expand the standard deduction and personal exemption, allowing fewer taxpayers to go through the complexity of itemizing

• Retain, though possibly in a modified form, the deductions for mortgage interest and charitable contributions as well as incentives for savings and education

• Repeal most other individual income tax preferences, including for state and local taxes

• Repeal AMT

• Repeal estate and gift tax


Focused more on “flaws” in the tax codeHouse Democrats

• Some Ways & Means Democrats seem interested in tax reform and have led the way on discrete parts (e.g., Rep. Richie Neal pairing with GOP Rep. Charles Boustany in 2015 to unveil an innovation box)

• However, the general approach of Ways & Means Committee Democrats is to continue to push for action to address what they say are deep flaws in the tax code, including:

‒ Treatment of carried interest

‒ Inversions and tax benefits available for formerly U.S.-domiciled firms

‒ Fossil fuel incentives

• 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

• They are unlikely to be helpful in supporting the sort of tax reform that Trump and House Republicans will pursue


A different type of tax reform?Senate Republicans

• Senate Finance Committee Chairman Hatch has been working on “corporate integration” proposal all year‒ 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‒ Recipients subject to full tax (i.e., 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

‒ 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

‒ Prospects for any action are unclear; Chairman Hatch has so far delayed releasing it but may still do so this year

• In 2017, Senate Republicans may find themselves pivoting back toward a more traditional and comprehensive approach to tax reform


Hopes of the majority dashedSenate Democrats

• 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

• Unlike his House counterparts, he has also worked on a broader vision of tax reform, unveiling two (with Republican co-sponsors) in previous years when he was just a “back-bencher” on the panel

• This year, he has released discussion drafts on three pieces of tax reform as a way to “be in position” in case Clinton won and made tax reform a priority‒ Streamlining depreciation‒ Simplification of financial products taxation ‒ Reforming rules for retirement savings accounts

• Incentives for Senate Democrats to push for tax reform are unclear under a Trump presidency, but there may be areas of agreement on which legislation can be built


Could 2017 be the year for tax reform?

It depends…


Will 2017 be the year for tax reform?

• With a clear win, Trump could use his “honeymoon” period to advance a key issue such as tax reform.

• It is hard to view this campaign as having been a public affirmation of anything related to tax policy and certainly not corporate tax reform.



• Trump and Ryan may not start out on the best of terms.

• Working collaboratively with the new President might be politically difficult for Democratic members, whose constituents have expressed a strong dislike for Trump.

• President Obama and congressional Republicans got off on a bad foot in 2009, and things only got worse from there. As a newcomer to elected office, Trump has the opportunity for a “fresh start” with Congress.



• Tax reform needs strong presidential focus. President Obama did not provide it and, to this point, we have not seen sure signs that it would come from a President Trump.

• Senate Democrats are likely to face substantial internal disagreements about whether – and in what way – to help advance the ball on tax reform.

• Leaders in Congress (House Speaker Paul Ryan and presumptive Senate Democratic Leader Chuck Schumer) are more interested in tax reform than those who held similar positions in 2013-2014, when then-Finance Committee Chairman Max Baucus and Ways & Means Committee Chairman Dave Camp made a run at reform.



• Under current rules, tax reform enacted via reconciliation cannot lose revenue after the first decade, and that does not square with what we expect Republicans to push. This means they will have to either temper their expectations or work towards temporary tax reform, a prospect that could cause otherwise supportive stakeholders to balk.

• Other procedural barriers under reconciliation (prohibitions on extraneous provisions that don’t have substantial revenue implications, etc.) may impede passage.

• Republican-only tax reform comes with substantial political/policy challenges; internal disagreements could keep them from “getting to yes.”

• With Trump in the White House and Republicans retaining control of the House and Senate, the GOP is firmly in control, in general agreement on the need for tax reform, and can be expected to use their clean sweep to push it via reconciliation.



• Tax reform is always easier said than done. The actual task of paring back popular credits and deductions offers ample opportunities for well-organized opposition to arise.

• Not all Senate Democrats are on board. Progressive Senators Elizabeth Warren and Bernie Sanders oppose corporate rate cuts generally, and top Finance Committee Democrat Ron Wyden has once again embraced his support for repealing deferral.

• There is growing bipartisan agreement among other Members of Congress on the need for tax reform. Even House Minority Leader Nancy Pelosi told reporters in September that the US needs a lower corporate tax rate that produces growth.



• Inversions, foreign acquisitions, state aid cases, and BEPS make action on tax reform more politically urgent than ever.

• It is politically easier to demagogue “bad actors” than to develop solutions that can be portrayed as benefiting companies that shift jobs overseas.



• Deemed repatriation by itself is not tax reform and many fear it could sap momentum for broader reform.

• It is an open question as to whether Republicans would even go for such a package, which looks a lot like “tax and spend.”

• A shared interest in boosting the economy could lead lawmakers to support an infrastructure spending plan, and that could be funded with deemed repatriation.



• The economy appears to be solid, if unexceptional, allowing Congress space to work on big but difficult issues.

• A closely divided Congress may be more conducive to continued gridlock.

• The 2018 mid-term elections are about 720 days away, followed closely by the 2020 Presidential election in about 1450 days.

• We can’t ignore the risk of a “black swan” event.


Questions?


Appendix


• President submits budget by first Monday in February

• House and Senate Budget Committees report budgets by April 1

• Full House and Senate agree on a concurrent budget resolution by April 15 ‒ Establishes a spending ceiling and revenue floor that are designed to constrain the budget impact of

subsequent legislation ‒ Covers both mandatory (Medicare, Social Security, etc.) and discretionary (defense, education, etc.)

spending‒ Can be used to make “reconciliation” bills in order – valuable to the majority party, because they are not

subject to filibuster in the Senate

• House and Senate Appropriations Committees use budget to draft 12 appropriations bills, which Congress passes and the President signs by October 1‒ Divvies up the budget into specific spending categories and line items by agency

The budget process: in theory

1APRIL

15OCTOBER


• The President is often late in his budget submission to Congress, especially in the first year of an Administration ‒ Last year’s was the first on time since 2010 (for FY11); submitted Feb. 9 this year (8 days late)‒ Clinton’s first budget submission: April 8, 1993; G.W. Bush’s: April 9, 2001; Obama’s: May 7, 2009

• Congress rarely adopts a concurrent resolution on the budget by April 15, if at all‒ Last year’s resolution (adopted May 5, 2015) was the first since 2009 (for FY10)

• Budget points of order are often waived ‒ In the Senate, waiver requires 3/5 vote; in the House, a simple majority will usually suffice

• Discretionary accounts are often funded through continuing resolutions, not appropriations bills‒ All 12 appropriations bills were last enacted on time in 1996 (for FY97) ‒ Since 2010, 28 continuing resolutions have been needed to keep the government open

• A separate debt limit constrains overall federal borrowing and must be raised or waived from time to time

The budget process: in practice


How does it work?GOP control raises prospects of “budget reconciliation”

• House and Senate must agree on a budget resolution that includes the reconciliation instructions

• Reconciliation instructions cannot be prescriptive – they may specify only:‒ The Committee(s) charged with reporting legislation‒ The budget impact of legislation to be reported ‒ Date by which Committee(s) must report conforming legislation

• Maximum of 3 reconciliation bills can be moved in a year – one each for revenues, spending, and debt limit

• Limited debate – legislation moved under reconciliation cannot be filibustered in the Senate

• The “Byrd Rule” can set up 60-vote hurdles in the Senate, including with respect to:‒ Provisions which have no budgetary effect or whose budget effect is “merely incidental”‒ Provisions which would increase the deficit in any year beyond the period covered by the budget

(recall the expiring 2001/2003 tax cuts)

• Recent uses: 1996 welfare reform, 2001 tax cuts, 2003 tax cuts, 2010 health care reform law

• There are advantages and disadvantages to using reconciliation that will factor into decisions over how to proceed


Storme SixeasSpeaker bio

Storme Sixeas is a member of the Tax Policy Group within the Washington National Tax practice of Deloitte Tax LLP. Drawing on her extensive experience in the policy arena, she identifies, evaluates, and monitors legislative proposals, and interprets the practical issues surrounding the application of tax proposals. Storme provides political intelligence based on ongoing interaction with Congressional members and staff and helps Deloitte’s clients stay on top of the numerous and often complicated debates in tax policy.

Prior to joining Deloitte in 2015, Storme spent a dozen years as a corporate policy lobbyist, covering issues including corporate tax, trade, federal contracting, technology policy, and intellectual property. During that time, she was the chief policy lobbyist for defense company BAE Systems, Inc., and for the Electronic Industries Alliance (EIA), a high-tech trade association; and she represented clients in the technology and defense industries as a self-employed consultant. Previously, Storme served as a House of Representatives leadership aide on Capitol Hill.

Before entering the legislative and policy arenas, Storme spent several years in financial and technology journalism, serving in various reporting and editing capacities at organizations including the Financial Times Group in London.

After growing up around the globe as an Air Force brat, Storme earned a Bachelor of Journalism from the University of Missouri-Columbia. She also holds an MBA in financial management from George Mason University.

Phone +1 202-220-2078Email [email protected]


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Documents

Deloitte Family Office Conferenceevents.deloitte.com/Houston/presentation_11_15.pdf · 2016-11-18 · Deloitte Family Office Conference Politics and Priorities for 2016 and Beyond