1 00:00:00,080 --> 00:00:03,720 Speaker 1: President Trump unveiled his tax reform plan yesterday during an 2 00:00:03,720 --> 00:00:07,320 Speaker 1: event in Indianapolis, saying it will provide tax cuts to 3 00:00:07,440 --> 00:00:13,720 Speaker 1: working class Americans. Democrats and Republicans and Congress should come 4 00:00:13,720 --> 00:00:18,480 Speaker 1: together finally to deliver this giant win for the American 5 00:00:18,560 --> 00:00:25,400 Speaker 1: people and begin middle class miracle. But Senate Majority Leader 6 00:00:25,480 --> 00:00:28,560 Speaker 1: Chuck Schumer was one of many Democrats who said the 7 00:00:28,600 --> 00:00:32,960 Speaker 1: plan would do just the opposite. Under this plan, the 8 00:00:33,040 --> 00:00:38,720 Speaker 1: wealthiest Americans and wealthiest corporations make out like bandits, while 9 00:00:38,760 --> 00:00:43,000 Speaker 1: middle class Americans are left holding the bag. Here to 10 00:00:43,040 --> 00:00:46,680 Speaker 1: help sort through this are Mike greenwal department at Freedman 11 00:00:46,880 --> 00:00:51,320 Speaker 1: LLLP and Corporate and Business tax Practice, and Richard Schlumbach, 12 00:00:51,520 --> 00:00:56,640 Speaker 1: professor at Duke University Law School. Richard, let's start with 13 00:00:56,840 --> 00:01:00,720 Speaker 1: the nine page proposal is a broad outline with important 14 00:01:00,720 --> 00:01:05,520 Speaker 1: details left to Congress to hash out. Without more details, 15 00:01:05,720 --> 00:01:09,080 Speaker 1: is it difficult to know if mid middle income families 16 00:01:09,120 --> 00:01:14,840 Speaker 1: will see the most benefit or rather the richest Americans. Well, 17 00:01:14,880 --> 00:01:18,960 Speaker 1: I think this is clearly um a package of materials 18 00:01:19,000 --> 00:01:22,480 Speaker 1: that has a lot of benefits for high income taxpayers. 19 00:01:22,959 --> 00:01:25,039 Speaker 1: It's not clear whether it has any benefits at all 20 00:01:25,120 --> 00:01:29,160 Speaker 1: for middle and lower income taxpayers UH. The number of 21 00:01:29,200 --> 00:01:33,400 Speaker 1: things that are unambiguously favorable to UM high income and 22 00:01:33,720 --> 00:01:38,640 Speaker 1: wealthy people, like repeal of the estate tax UH, the 23 00:01:38,680 --> 00:01:43,480 Speaker 1: fact that passed through entities which would include medical and 24 00:01:43,560 --> 00:01:46,479 Speaker 1: law partnerships where you have a lot of income that's 25 00:01:46,480 --> 00:01:49,480 Speaker 1: currently being taxed at thirty five or thirty nine point 26 00:01:49,560 --> 00:01:53,920 Speaker 1: six percent, the rates to be kept, a number of 27 00:01:54,520 --> 00:01:58,880 Speaker 1: business enhancements that are gonna make it more profitable to 28 00:01:59,280 --> 00:02:02,080 Speaker 1: own and operate a business, and and the businesses are 29 00:02:02,120 --> 00:02:06,800 Speaker 1: mostly operated by relatively high income people when you get 30 00:02:06,800 --> 00:02:09,440 Speaker 1: down to the middle UM. There's going to be a 31 00:02:09,480 --> 00:02:12,520 Speaker 1: doubling of the standard deduction, which is certainly helpful, but 32 00:02:12,639 --> 00:02:15,800 Speaker 1: it's going to be largely offset by the suggestion that 33 00:02:15,840 --> 00:02:19,520 Speaker 1: we would have no personal exemptions. So whether that helps 34 00:02:19,520 --> 00:02:22,519 Speaker 1: you or hurts you depends on your family size. UM. 35 00:02:22,600 --> 00:02:24,919 Speaker 1: There's also a suggestion that they're being enhancement to the 36 00:02:24,960 --> 00:02:27,919 Speaker 1: child credit, but that's one of the details that's still 37 00:02:27,960 --> 00:02:30,200 Speaker 1: to be worked out. We don't know how much. UM. 38 00:02:30,240 --> 00:02:33,919 Speaker 1: If it's a substantial enhancement to the child credit, it 39 00:02:34,040 --> 00:02:38,280 Speaker 1: could offset the loss of the personal exemptions, but without 40 00:02:38,280 --> 00:02:40,760 Speaker 1: knowing the amount, you can't know that what we don't 41 00:02:40,800 --> 00:02:43,519 Speaker 1: see your things that really might help low and modern 42 00:02:43,600 --> 00:02:47,560 Speaker 1: income people, like reductions in the payroll taxes, enhancements to 43 00:02:47,600 --> 00:02:50,680 Speaker 1: the earned income tax credit, and things of that sort. 44 00:02:51,680 --> 00:02:56,080 Speaker 1: And Mike, do you agree with that analysis? I? I 45 00:02:56,200 --> 00:03:00,680 Speaker 1: absolutely agree, and i'd i'd go, you know, one step further, there's, 46 00:03:00,919 --> 00:03:04,120 Speaker 1: uh the fact that you know, we're going to reduce 47 00:03:04,240 --> 00:03:08,480 Speaker 1: the progressivity of the of the overall individual tax system 48 00:03:08,520 --> 00:03:12,040 Speaker 1: to three brackets, and that could very well be favorable 49 00:03:12,120 --> 00:03:16,680 Speaker 1: to working people in uh, lower middle income people, but 50 00:03:16,720 --> 00:03:20,160 Speaker 1: we don't know where those brackets break out. So someone 51 00:03:20,160 --> 00:03:23,079 Speaker 1: who's currently in the ten percent bracket might find themselves 52 00:03:23,120 --> 00:03:26,600 Speaker 1: moving up a little bit into what's now going to 53 00:03:26,680 --> 00:03:29,040 Speaker 1: be a twelve percent bracket, and we just don't know 54 00:03:29,080 --> 00:03:32,880 Speaker 1: where that move point is. Uh. I would say that, 55 00:03:33,240 --> 00:03:38,360 Speaker 1: you know, the scorecard on this is is really incomplete 56 00:03:38,360 --> 00:03:41,440 Speaker 1: at this point, and the lack of specificity and the 57 00:03:41,520 --> 00:03:43,080 Speaker 1: fact that so much is going to be left to 58 00:03:43,160 --> 00:03:46,680 Speaker 1: Congress to work out and with apparently very little time 59 00:03:46,760 --> 00:03:50,240 Speaker 1: to do that is troubling and makes it difficult to 60 00:03:50,240 --> 00:03:52,960 Speaker 1: predict who wins and losers. But there's definitely gonna be 61 00:03:53,000 --> 00:03:57,200 Speaker 1: winners and losers. Richard, the biggest deduction that would be 62 00:03:57,240 --> 00:04:00,920 Speaker 1: eliminated is the one for state and local taxes, and 63 00:04:01,000 --> 00:04:06,640 Speaker 1: that primarily hits people in blue states where tax isn't 64 00:04:06,680 --> 00:04:11,800 Speaker 1: often incomes are higher. Is that a move that's uh 65 00:04:13,120 --> 00:04:16,600 Speaker 1: you think a Republican move to hit Democrats or is 66 00:04:16,640 --> 00:04:22,760 Speaker 1: that just something that ended up there? Um, I don't 67 00:04:22,760 --> 00:04:25,200 Speaker 1: want to speculate too much on on motives that it 68 00:04:25,240 --> 00:04:28,560 Speaker 1: probably does have a differential impact according to whether the 69 00:04:28,600 --> 00:04:30,800 Speaker 1: state has an income tax or not. And there are 70 00:04:30,920 --> 00:04:35,160 Speaker 1: about six or seven that do not, including prominently Florida 71 00:04:35,200 --> 00:04:38,920 Speaker 1: and Texas. But but over forty states do have uh, 72 00:04:39,000 --> 00:04:42,440 Speaker 1: state income taxes. So it's it's not the case that 73 00:04:42,440 --> 00:04:45,599 Speaker 1: that the state income tax deduction is exclusively a boot 74 00:04:45,600 --> 00:04:48,359 Speaker 1: state feature. There's a there's a sort of a disparate 75 00:04:48,400 --> 00:04:51,200 Speaker 1: impact thing. It will affect Boo state residents a little 76 00:04:51,240 --> 00:04:54,680 Speaker 1: more than the average Red state resident, but there are 77 00:04:54,680 --> 00:04:57,239 Speaker 1: plenty of Red state residents who would lose the value 78 00:04:57,240 --> 00:05:00,599 Speaker 1: of that deduction as well. Mike, what about the lowering 79 00:05:00,640 --> 00:05:07,120 Speaker 1: of the corporate rate? Tell us a little bit about that. Well, again, 80 00:05:07,160 --> 00:05:11,080 Speaker 1: the you know, the lack of specificity is us is 81 00:05:11,120 --> 00:05:15,279 Speaker 1: a problem. We've we do currently have a graduated corporate 82 00:05:15,279 --> 00:05:18,320 Speaker 1: tax structure as all. People don't often talk about that, 83 00:05:18,360 --> 00:05:21,640 Speaker 1: but for you know, small and midsized businesses, small and 84 00:05:21,640 --> 00:05:24,119 Speaker 1: mid sized corporations, they do have rates that are lower 85 00:05:24,160 --> 00:05:27,800 Speaker 1: than the top thirty five percent rate that's talked about. UH. 86 00:05:28,240 --> 00:05:33,000 Speaker 1: Plus there's also a number of different credits and incentives 87 00:05:33,000 --> 00:05:36,279 Speaker 1: and deductions that have been made available to businesses by 88 00:05:36,320 --> 00:05:39,839 Speaker 1: Congress over the years to that reduced the overall effective 89 00:05:39,839 --> 00:05:44,120 Speaker 1: tax rates. So again without knowing what corporate deductions are 90 00:05:44,160 --> 00:05:47,239 Speaker 1: going to be eliminated. What Um, there's a talk about 91 00:05:47,279 --> 00:05:49,840 Speaker 1: special tax regimes for certain industries that are going to 92 00:05:49,920 --> 00:05:53,760 Speaker 1: be modernized. So without knowing all these other specifics, Yes, 93 00:05:54,800 --> 00:05:58,040 Speaker 1: corporate tax rate clearly is lower than than a thirty 94 00:05:58,080 --> 00:06:00,400 Speaker 1: five percent, but that's at the margin. We don't know 95 00:06:00,440 --> 00:06:07,320 Speaker 1: what happens in getting to that number. Um, Richard, we 96 00:06:07,400 --> 00:06:10,680 Speaker 1: just have about thirty seconds here, So what get you 97 00:06:10,680 --> 00:06:13,640 Speaker 1: can get started on the answer to this, which is 98 00:06:14,120 --> 00:06:17,080 Speaker 1: what is what do you see in this as as 99 00:06:17,120 --> 00:06:23,920 Speaker 1: the biggest change um, the very substantial reduction in taxes 100 00:06:23,920 --> 00:06:29,839 Speaker 1: on business, the cutting the top corporate rate from allowing 101 00:06:29,920 --> 00:06:36,159 Speaker 1: for expenses of capital acquisitions, UH, the capping the pass 102 00:06:36,240 --> 00:06:40,479 Speaker 1: through tax rate on income from basically professional services and 103 00:06:40,560 --> 00:06:45,000 Speaker 1: other um limit partnership arrangements. I've been talking with Professor 104 00:06:45,120 --> 00:06:50,039 Speaker 1: Richard Schmallback of Duke University Law School and Mike greenwal Department, 105 00:06:50,080 --> 00:06:53,720 Speaker 1: a Freedman LLLP and the Corporate in Business Tax Practice 106 00:06:53,800 --> 00:06:58,440 Speaker 1: leader about President Trump's tax plan and how it may 107 00:06:58,480 --> 00:07:02,080 Speaker 1: impact us. And part of the impact will be on 108 00:07:02,120 --> 00:07:06,680 Speaker 1: an international scale. So Mike start with telling us a 109 00:07:06,720 --> 00:07:11,640 Speaker 1: little bit about what the international impact will be. Thanks. 110 00:07:11,760 --> 00:07:16,480 Speaker 1: Right now, the US technically taxes its multinational corporations on 111 00:07:16,520 --> 00:07:19,800 Speaker 1: their worldwide earnings. But what's gotten a lot of publicity 112 00:07:19,840 --> 00:07:22,640 Speaker 1: over the last few years is how very large companies 113 00:07:22,680 --> 00:07:25,920 Speaker 1: are able to park uh much of their foreign earnings 114 00:07:25,960 --> 00:07:29,200 Speaker 1: overseas without ever paying US tax on it and still 115 00:07:29,200 --> 00:07:33,320 Speaker 1: have the use of the money. Uh. What's on the 116 00:07:33,440 --> 00:07:36,960 Speaker 1: last page of the nine page proposal. Uh, there's talk 117 00:07:37,040 --> 00:07:40,360 Speaker 1: about moving to what we call a territorial system, where 118 00:07:40,400 --> 00:07:43,760 Speaker 1: companies would just pay tax on the earnings that they 119 00:07:43,840 --> 00:07:46,880 Speaker 1: have within the United States. So the question was always 120 00:07:46,920 --> 00:07:49,920 Speaker 1: what to do about these offshore earnings, the off shore 121 00:07:50,000 --> 00:07:53,720 Speaker 1: cash and assets. And originally we thought that what was 122 00:07:53,760 --> 00:07:55,280 Speaker 1: going to come forward was going to be some kind 123 00:07:55,280 --> 00:07:58,640 Speaker 1: of a voluntary system where there'd be a reduced rate 124 00:07:58,680 --> 00:08:02,280 Speaker 1: available and come pennies could bring their earnings back and 125 00:08:02,280 --> 00:08:04,760 Speaker 1: and and pay one time tax on it, but it 126 00:08:04,760 --> 00:08:09,280 Speaker 1: would be voluntary. The proposal appears to make that mandatory. 127 00:08:10,040 --> 00:08:14,720 Speaker 1: The framework talks in terms of UH, they're going to 128 00:08:14,840 --> 00:08:18,200 Speaker 1: all be deemed as repatriated and that the tax would 129 00:08:18,240 --> 00:08:20,840 Speaker 1: be collected at a reduced rate, but over a couple 130 00:08:20,880 --> 00:08:24,240 Speaker 1: of years. And this looks to be one of the 131 00:08:24,560 --> 00:08:26,680 Speaker 1: items in the in the framework that they're going to 132 00:08:26,800 --> 00:08:29,760 Speaker 1: try to use as a pay for to cut down 133 00:08:29,760 --> 00:08:33,920 Speaker 1: on the overall impact on the deficit of the both 134 00:08:33,960 --> 00:08:36,839 Speaker 1: the corporate tax reduction in general and the move from 135 00:08:36,880 --> 00:08:41,559 Speaker 1: worldwide to territorial taxation. Richard, how do you analyze that 136 00:08:42,360 --> 00:08:48,320 Speaker 1: last the Well, similarly, I think it is a good 137 00:08:48,360 --> 00:08:50,640 Speaker 1: idea that I not to have a tax holiday like 138 00:08:50,720 --> 00:08:54,199 Speaker 1: we had about twelve years ago, which really didn't accomplish 139 00:08:54,320 --> 00:08:58,160 Speaker 1: much of anything. Um So, the idea of of collecting 140 00:08:58,200 --> 00:09:01,240 Speaker 1: some of that tax that's been accumulating in foreign subsidiaries 141 00:09:01,480 --> 00:09:04,319 Speaker 1: UH is good. Again, we don't have much detail, um 142 00:09:04,400 --> 00:09:06,839 Speaker 1: so a lot depends on exactly how they go about that, 143 00:09:06,920 --> 00:09:09,440 Speaker 1: but um that's that's preferable. I think to a tax 144 00:09:09,480 --> 00:09:14,079 Speaker 1: holiday going forward from this point, it would um exempt 145 00:09:14,160 --> 00:09:17,120 Speaker 1: foreign earnings and it's really hard to see how that 146 00:09:17,480 --> 00:09:21,640 Speaker 1: would advantage American workers. It would put a multinational corporation 147 00:09:22,200 --> 00:09:25,079 Speaker 1: in the position of saying, uh, do I want to 148 00:09:25,160 --> 00:09:29,120 Speaker 1: put a new facility in Ireland where the tax rate 149 00:09:29,160 --> 00:09:32,080 Speaker 1: is twelve and a half percent? Uh, and uh, I 150 00:09:32,120 --> 00:09:34,840 Speaker 1: will never have to pay any additional American tax with 151 00:09:34,920 --> 00:09:36,319 Speaker 1: respect of that. I'll just pay the twelve and a 152 00:09:36,360 --> 00:09:39,680 Speaker 1: half percent to Ireland and then we're home free. Or 153 00:09:39,679 --> 00:09:43,560 Speaker 1: should I do it in Indiana and pay tax? It 154 00:09:43,600 --> 00:09:45,679 Speaker 1: does help that the corporate rate is pushed down from 155 00:09:45,720 --> 00:09:49,200 Speaker 1: thirty five to twenty that that narrows the difference between 156 00:09:49,240 --> 00:09:52,959 Speaker 1: the US rates and some of the um UH lower 157 00:09:53,040 --> 00:09:56,480 Speaker 1: rates that we see abroad, but it doesn't it doesn't 158 00:09:56,520 --> 00:09:59,800 Speaker 1: eliminate the difference. And if you're talking about billions of 159 00:09:59,840 --> 00:10:02,080 Speaker 1: do there's a earnings twelve and a half percent is 160 00:10:02,240 --> 00:10:05,240 Speaker 1: going to give you a big break over And why 161 00:10:05,240 --> 00:10:07,080 Speaker 1: would you choose to put it in Indiana if you 162 00:10:07,080 --> 00:10:10,120 Speaker 1: can put it in Ireland instead. So it's really hard 163 00:10:10,160 --> 00:10:13,319 Speaker 1: to see how that is consistent with what his expressed 164 00:10:13,360 --> 00:10:17,319 Speaker 1: views are about UM you know, restoring American jobs and 165 00:10:17,400 --> 00:10:22,840 Speaker 1: stopping the exporting of American jobs. And Mike, let's talk 166 00:10:22,880 --> 00:10:27,680 Speaker 1: about that two trillion dollar deficit from this bill over 167 00:10:27,720 --> 00:10:31,520 Speaker 1: the next decade. Any is there any indication from anyone 168 00:10:31,559 --> 00:10:36,440 Speaker 1: about how that is going to be filled. No, it's 169 00:10:36,520 --> 00:10:39,800 Speaker 1: that's again one of those details. It's left to Congress. Uh. 170 00:10:39,840 --> 00:10:43,680 Speaker 1: But I think it's it's interesting that somebody was able 171 00:10:43,720 --> 00:10:46,040 Speaker 1: to do that math this quickly. I don't think I 172 00:10:46,080 --> 00:10:49,360 Speaker 1: could have seen glean from what's in this nine pages 173 00:10:49,960 --> 00:10:52,200 Speaker 1: um where that math comes from. But it makes a 174 00:10:52,240 --> 00:10:55,480 Speaker 1: certain amount of sense to me in in a macro uh, 175 00:10:55,520 --> 00:10:59,120 Speaker 1: in a macro way. I think that you know, from 176 00:10:59,120 --> 00:11:01,800 Speaker 1: my standpoint, I've been doing this a while. I was 177 00:11:01,840 --> 00:11:04,520 Speaker 1: around for the tax reform active eighty six. Tax reform 178 00:11:04,640 --> 00:11:07,920 Speaker 1: is tough, and it takes a lot of time. Uh. 179 00:11:07,960 --> 00:11:10,200 Speaker 1: And and especially when you're trying to make these kinds 180 00:11:10,200 --> 00:11:14,080 Speaker 1: of massive changes without having too significant an impact on 181 00:11:14,160 --> 00:11:17,360 Speaker 1: both the economy and the deficits of the government runs, 182 00:11:17,679 --> 00:11:19,959 Speaker 1: it's going to take some time to figure out where 183 00:11:20,080 --> 00:11:24,480 Speaker 1: to draw those additional revenues from. And uh, I hope 184 00:11:24,480 --> 00:11:27,520 Speaker 1: what it doesn't mean is that the amount of benefits 185 00:11:27,520 --> 00:11:30,840 Speaker 1: available to most taxpayers winds up getting reduced from the 186 00:11:30,880 --> 00:11:36,560 Speaker 1: original proposal. So Richard in about to get down to 187 00:11:36,679 --> 00:11:41,559 Speaker 1: about thirty seconds here, will that stop fiscal conservatives from 188 00:11:41,600 --> 00:11:46,600 Speaker 1: going with this plan that two trillion dollars it should Um, 189 00:11:46,640 --> 00:11:48,720 Speaker 1: that's the sort of political question that's hard to know. 190 00:11:48,880 --> 00:11:51,960 Speaker 1: There's a lot going on that complicates their lives. But 191 00:11:52,240 --> 00:11:53,920 Speaker 1: I did want to add that I thought the two 192 00:11:53,920 --> 00:11:56,079 Speaker 1: trillion was just a wild guess at this point. But 193 00:11:56,160 --> 00:11:58,439 Speaker 1: what we do know is as you look at these features, 194 00:11:58,440 --> 00:12:00,640 Speaker 1: there are a lot of big revenue loser and not 195 00:12:00,760 --> 00:12:03,800 Speaker 1: very many revenue gainers. So something is going to have 196 00:12:03,840 --> 00:12:06,360 Speaker 1: to be done or the deficit will grow a lot. 197 00:12:06,720 --> 00:12:08,960 Speaker 1: Uh So how much they want to do is uh 198 00:12:09,080 --> 00:12:10,559 Speaker 1: kind of up to them, and I think they'll be 199 00:12:10,640 --> 00:12:12,600 Speaker 1: quite a bit of a struggle within the Republican Party 200 00:12:12,600 --> 00:12:14,600 Speaker 1: about that. It seems like there's a lot of blank 201 00:12:14,800 --> 00:12:18,280 Speaker 1: space yet in this plan. Thank you both for being 202 00:12:18,360 --> 00:12:22,600 Speaker 1: on Bloomberg Law. That's Professor Richard Schmallbeck of Duke University 203 00:12:22,679 --> 00:12:25,679 Speaker 1: Law School and Mike Greenwald, a partner at Friedman l 204 00:12:25,840 --> 00:12:26,040 Speaker 1: l P.