Trump, Pelosi Put 2017 Tax Law on Table in Next Virus Aid Round

Some of the most contested pieces of the 2017 tax overhaul are being revisited as the White House and Congress begin to discuss another round of economic stimulus, including restoring the break for entertaining business clients and lifting the cap on state and local deductions.

House Speaker Nancy Pelosi has said the next coronavirus response bill shouldsuspend the $10,000 cap on deductions for state and local taxes. President Donald Trump wants to restore a tax break for corporate client outings, dinners, sporting games, concerts and cruises, which were limited under the tax overhaul.

25,200 in U.S.Most new cases today

-26% Change in MSCI World Index of global stocks since Wuhan lockdown, Jan. 23

-1.​142 Change in U.S. treasury bond yield since Wuhan lockdown, Jan. 23

“Congress must pass the old, and very strongly proven, deductibility by businesses on restaurants and entertainment,” Trump said in a tweet on Wednesday. “This will bring restaurants, and everything related, back - and stronger than ever. Move quickly, they will all be saved.”

Changes will not be easy.

The deduction cap for state and local taxes was a large cost-saving measure in the $1.5 trillion tax-cut plan enacted in 2017, and reversing that would benefit people largely in states run by Democrats. Republicans have already called the idea a “non-starter” and accuse Democrats of using the virus crisis to repeal the most politically contested portion of the tax law.

Restoring the deduction for corporate entertainment costs could benefit Trump’s own companies and wouldn’t help venues that are shut down for a prolonged period of time. The 2017 tax law eliminated writeoffs for entertainment expenses while leaving intact a 50% deduction for client meals. The president has said he wants to make that tax break more generous.

“I think it will open up the restaurant business,” he remarked at a White House briefing on Wednesday evening.

Veena Murthy, a principal at accounting firmCrowe LLP, said Congress would have to roll back decades of tax-code adjustments to make meals and entertainment costs fully deductible. “And I don’t think that’s going to happen,” she said.

SALT Deduction

The 2017 law’s limit on deductions for state and local taxes largely affects residents of high-tax states, such as New York, California and New Jersey, which tend to have statehouses and congressional delegations dominated by Democrats.

“I’m not going to allow this to be an opportunity for the Democrats to achieve unrelated policy items they wouldn’t otherwise be able to pass,” Senate Majority Leader Mitch McConnell said in an interview with Hugh Hewitt on Tuesday.

Discussion of a new round of economic stimulus is in the early stages, and Pelosi said Wednesday the House might take up a bill soon after its scheduled return to Washington April 20.

The SALT limit and other cost-saving measures were necessary to keep the massive 2017 corporate and individual income tax cut below a $1.5 trillion price cap -- a condition of the budgetary process Republicans used to pass it without Democratic votes.

​“Republicans used budget gimmicks to keep the costs down,” said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. “They took deductions that would have been within the 10-year budget window and pushed them outside of the window.”​

​This time, with members of both parties seeking to encourage companies to keep workers on the job as coronavirus containment shuts down much of the economy, neither party is particularly concerned about running up a large tab.

For the most recent round of fiscal stimulus that Trump signed into law last week, the White House initially floated a rescue package of about $850 billion. As the House, Senate and White House worked on the details -- each winning expensive priorities such as loans to struggling companies, expanded unemployment insurance and cash payments to households -- the price tag swelled to $2.2 trillion.

Tax Law Fixes

Republicans got to roll back some of the tax increases they had to include in the 2017 tax law to limit its total cost. The new law loosens limits on interest write-offs and lets companies use losses incurred this year to claim a refund for taxes paid in past years.

Congress also fixed a 2017 mistake that had increased taxes -- instead of providing a juicy tax break -- for restaurants and retailers renovating their stores. For three years, Democrats resisted making that change, but they relented as part of the virus stimulus negotiations.

“At first glance I was like, ‘Really? Wow, way to go lobbyists,’” said Gordon Gray, director of fiscal policy at the American Action Forum, a right-leaning policy institute. “And then I sat down to think about it. We’ve closed a lot of businesses so some of these make sense.”

These changes were already on many lawmakers’ wish lists. But Marc Gerson, a former tax counsel to the House Ways and Means Committee, said the current need to get money to companies quickly is a completely different calculus from 2017, when Congress raised taxes in some areas to pay for the overall cuts. Gerson is now a member at the law firm Miller & Chevalier.

Some proposed changes to the 2017 tax law didn’t make it into the final bill enacted last week. Democrats blocked two provisions Republicans had suggested -- letting corporations quickly get refunds for overpayments of repatriation taxes, and fixing a technical error that would clarify how stock is attributed to foreign subsidiaries.

“There is always a pendulum swing back to some degree with major legislation,” said Rohit Kumar, a former McConnell aide now atPricewaterhouseCoopers LLP’s Washington National Tax Services. “Clearly some elements here fit that mold.”

— With assistance by Mario Parker

Source: Read Full Article