Tag: republican

Post Election – Expect Tax Legislation

I. Introduction

With clear Republican victories in the White House and the Senate, and a very slim majority for either side in the House of Representatives, we can expect tax legislation in the coming year. It is expected that the President elect will likely seek to enact his economic agenda as quickly as possible. While Congress may work for bipartisan support of any such legislation, Congressional Republicans and the Administration have the ability to utilize the filibuster-proof budget reconciliation rules (that eliminate the need for 60 votes in the Senate) to pass such tax legislation. We understand that the advance preparation and work for a 2025 reconciliation bill began in Republican Leadership offices over the summer and will continue through the end of the year.

Key to the current discussions of tax policy are provisions from the 2017 Tax Cuts and Jobs Act (the “TCJA”), a large overhaul of the Internal Revenue Code during President Trump’s first term. The TCJA instituted many significant changes to U.S. tax laws, including cutting the corporate rate, lowering individual income tax rates, and introducing a new deduction for passthrough income. However, due to various reasons, including the arcana of procedural rules of Congress associated with the “reconciliation” procedures, many of these provisions were temporary and scheduled to expire at the end of 2025. Exactly which provisions are to be extended, which to be modified, which to be abandoned and how to budget for each of these provisions, is expected to be a part of the legislative agenda next year. It is important to note that, among certain other items, the reduced corporate tax rate enacted in the TCJA is not scheduled to expire.

The most significant expiring provisions of the TCJA are set forth below.

II. Expiring Provisions

A. Changes to non-corporate tax rates, credits, deductions, exemptions and exclusions

The most significant expiring provisions, at least from a political perspective, are the provisions providing significant adjustments to the various tax rates, credits, deductions and similar provisions mostly applicable to individuals, resulting in a broad-scale reversion to the pre-2017 regime for individual taxpayers. The key changes are the following, generally coming into effect in 2026, if not extended or modified:

  • The lower individual income tax rates in the TCJA will expire, and the top marginal rate will go from 37% to 39.6%;
  • The estate and gift tax exclusion amount will be cut in half to $5 million and then adjusted for inflation, so the estate tax exemption will go from approximately $14 million in 2025 to approximately $7 million in 2026;
  • The standard deduction will revert to pre-TCJA levels (almost half the current standard deduction), although the personal exemption amount (which was set to zero under the TCJA) will return to pre-TCJA levels as well;
  • The deduction for miscellaneous itemized expenses, including unreimbursed employee expenses and tax preparation fees will return, and taxpayers will be able to deduct miscellaneous itemized expenses above 2% of adjusted gross income (“AGI”);
  • The phasing-out of itemized deductions for high income taxpayers will return;
  • The TCJA’s cap on the deductibility of state and local tax will expire, so taxpayers will be able to deduct all state and local income taxes (or sales taxes, if selected by the taxpayer) and property taxes—this may be celebrated by higher-income taxpayers in high tax states, but much of the benefit could be tempered by the return of broader scope of the alternative minimum tax discussed immediately below;
  • The alternative minimum tax (the “AMT”), which under the TCJA was limited to a small number of taxpayers, will return to its pre-TCJA form (which applied to a much larger group of individual taxpayers);
  • The deduction limit for cash charitable deductions will revert to 50% of AGI (as compared the current limit of 60% of AGI);
  • The child tax credit will be cut in half so that the maximum credit is $1,000 per child, the refundable portion of the credit will decline from $1,400 to $1,000, and other various adjustments will apply; and
  • The broader mortgage interest exemption available under the pre-TCJA regime will return.

B. Employment-related provisions

Certain employment-related provisions will also expire, and many pre-TCJA rules will return, generally in 2026, if not extended or modified. The most significant changes are the following:

  • The Work Opportunity Tax Credit, which provides a credit to employers who hire members of certain groups, such as veterans, recipients of various federal welfare benefit programs, and residents of empowerment zones, would expire;
  • Employers who pay wages to employees on family and medical leave are generally eligible currently for a credit for a percentage of 12 weeks of paid leave wages—this credit would expire;
  • The deductibility of employer-provided meal expenses, currently limited to 50 percent of the meal expense, will be eliminated; and
  • The suspension of the exclusion for employer reimbursements for moving expenses for persons other than certain members of the armed services, will be lifted, at which point taxpayers will be able once again to exclude from income qualifying moving expense reimbursements received from an employer.

C. Various business provisions

Multiple provisions designed to create tax benefits or tax reductions for certain business operations or activities are also amongst the set of expiring or changing provisions. Among the key provisions that will change, generally in 2026, if not extended or modified are the following:

  • The TCJA introduced the qualified business income deduction for 20% of qualified passthrough income, excluding specified service trade or business income, and ordinary REIT dividends—this deduction would expire, so passthrough income and ordinary REIT dividends will be taxed at ordinary income rates with no deduction;
  • The TCJA’s bonus depreciation allowance will continue to decline over the next few years: only a 40% immediate deduction in 2025, 20% in 2026, and no bonus depreciation after 2026 (with some exceptions);
  • The special “opportunity zone” rules—whereby taxpayers could defer capital gains if the gains are reinvested in such an opportunity zone and exclude capital gains income after a 10-year holding period—will expire. Similarly, the empowerment zone program’s tax benefits and the New Markets Tax Credit will also expire.

D. International tax provisions

The TCJA also made some significant revisions to the international and cross-border tax rules, many of which will have changes that will automatically trigger in 2025 or 2026. The most material are:

  • The “base erosion and anti-abuse tax” (the “BEAT”) minimum tax rate will increase to 12.5% (from 10%) and the calculation of the modified income tax (on which the BEAT minimum tax rate applies) will be adjusted to eliminate the taxpayer’s ability to benefit from certain tax credits;
  • The deductions applicable to global intangible low-taxed income (“GILTI”) inclusions for corporations will be reduced (resulting in an increase in the amount of tax imposed on such inclusions)—the deductions for most income will drop from 50% to 37.5%;
  • The deduction on “foreign derived intangible income” (“FDII”) will drop from 37.5% to 21.875%; and
  • The oft extended “look through” rule (which did not originate in the TCJA) for dividends, interest, rents and royalties received by a controlled foreign corporation from another related controlled foreign corporation is set to expire.

As one can imagine on reading this long list of expiring tax provisions (and not even taking account the many more minor provisions also set to expire or change which are not included above), the likelihood of a new tax bill to address these provisions is high. Given the nature of the Congressional rules around reconciliation and the nature of budget and tax negotiations, attempts to extend many of these provisions would likely involve the addition of new revenue-raising provisions. As such, the prospects of tax reform in 2025 are high. Proskauer closely monitors legislative developments, and additional tax blog posts will be made as specific tax proposals are moved through Congress.

© 2024 Proskauer Rose LLP.
For more on Tax Legislation, visit the NLR Tax section

Surprise! President Trump Nominates Democrat and Republican to FERC

On July 27, 2020, President Trump nominated two candidates to the Federal Energy Regulatory Commission (FERC), securing a Republican majority on the Commission through June 2021 while also ensuring a continued quorum.

Trump nominated Allison Clements, the Democrats’ top pick, alongside Republican Mark C. Christie. Clements currently serves as founder and president of Goodgrid, LLC, an energy policy and strategy consulting firm. She previously worked for over a decade at the Natural Resources Defense Council, and spent two years as director of the clean energy markets program at the Energy Foundation. Christie currently serves as chairman of the Virginia State Corporation Commission, having served for 16 years on the Virginia board that oversees utilities.

FERC is a five-member agency that should have no more than three members of any one party. For much of the past year it has been operating with three Republicans and one Democrat. FERC’s newest commissioner, James Danly, was confirmed in March despite requests from Democrats to pair his nomination with Clements. Clements would fill the seat left vacant by Commissioner Cheryl LaFleur in August 2019. If confirmed, Christie will take the seat of Republican Commissioner Bernard McNamee, whose tenure expired in June but who plans to stay on until his replacement is seated.

Republican Chairman Chatterjee has announced that he will remain on the Commission until the end of his term, which expires June 2021, although the next President will determine if he continues to serve as chairman. Trump’s appointment of Christie, paired with Chairman Chatterjee’s intention to fulfill his term, could secure a Republican-held Commission for the first months of a Biden presidency in the event the Democratic nominee is successful in November.

©2020 Pierce Atwood LLP. All rights reserved.

The Republican Platform – What It Means for Healthcare

The National Law Review recently published an article by Andrew Bowman of Drinker Biddle & Reath LLP regarding The Republican Platform and Healthcare:

The Republicans formalized their party platform yesterday as part of the first day of their national convention.  The document does not contain many surprises, but solidifies the direction GOP leadership will take should they win in November.  Here are some highlights for health advocates:

Repeal of the Affordable Care Act: Again, this comes as little surprise, given that Republicans have promised to repeal the measure since the day it was signed, and the Republican-led House has passed numerous bills to do so.  But the party platform confirms the party’s plans, saying “Congressional Republicans are committed to its repeal; and a Republican President, on the first day in office, will use his legitimate waiver authority under that law to halt its progress and then will sign its repeal.”

The document also offers insight into the framework of potential Republican legislation to replace the ACA, promising to “increase healthcare choice and options, contain costs and reduce mandates, simplify the system for patients and providers, restore cuts made to Medicare, and equalize the tax treatment of group and individual health insurance plans.”  The platform also calls for price transparency for health services, a cap on non-economic damages in medical malpractice lawsuits, and promotion of Health Savings Accounts and Health Reimbursement Accounts to be used for insurance premiums.

Medicaid Block Grants: This is another long-standing idea, which was included in the House-passed budget drafted by current Vice-Presidential nominee Paul Ryan.  Calling Medicaid “the next frontier of welfare reform,” the platform recommends block-granting the Medicaid program.  Currently, the federal government sets standards for Medicaid eligibility and pays about 60% of the cost of covering those individuals.  The block grant program would provide each state with a lump sum annual payment in exchange for greater freedom in administering the program.  The platform says this change would allow “flexibility to design programs that meet the needs of their low income citizens.”

Changes to Medicare: The platform also adopts the portion of the Ryan plan which would convert Medicare from a defined-benefit system into a defined contribution system for Americans under the age of 55.  This is what has come to be known as the voucher system, wherein Medicare beneficiaries would be given the option of traditional Medicare or income-adjusted premium support to purchase their own health insurance.  The platform also suggests an increase in the age of eligibility “without disadvantaging retirees or those nearing retirement,” but does not lay out particulars on when such changes would be implemented or to what age eligibility might be raised.

Investments in Healthcare: While much of the platform’s focus is on reigning in federal spending, Republicans do endorse “investment in healthcare delivery systems and solutions creating innovative means to provide greater, more cost-effective access to high quality healthcare,” specifically “basic and applied biomedical research, especially the neuroscience research that may hold great potential for dealing with diseases and disorders such as Autism, Alzheimer’s, and Parkinson’s.”

©2012 Drinker Biddle & Reath LLP