Hatch plan may put nonprofits in play

With help from Elena Chiriboga and Brian Faler

HATCH PLAN MAY PUT NONPROFITS IN PLAY: Taking a bite out of nonprofits, especially churches, sounds like something that could cause some political headaches. But Senate Finance Chairman Orrin Hatch (R-Utah), in trying to make the math work on a corporate integration bill, might not have any choice.


Tax Pro Brian Faler has the story: Hatch is trying to get rid of the current double tax on corporate income, a way to ease the tax burden on corporations without actually touching the rate. But that means raising taxes on corporate shareholders – a large number of whom are, you guessed it, nonprofits.

Hatch told Brian he hadn’t made any decisions on how to approach the issue, and that he’s awaiting some figures from the Joint Committee on Taxation as he too tries to set the stage for moving actual legislation under a new president. “If Hatch opts to charge nonprofits on their dividends, he'll likely argue they'll be no worse off than today. That's because companies will have an incentive to pay out bigger dividends, so it could end up being a wash for the nonprofits,” Brian writes.

Tax experts say forcing nonprofits to pay more makes sense for policy reasons — that it could reduce the tax appeal for companies of investing with borrowed money, and even tamp down on corporate inversions. The small business community, a very powerful force within the GOP, would also be just fine with a corporate integration bill.

“But the proposal would also be expensive, because it would amount to taking a big chunk out of the corporate income tax, projected this year to bring in $327 billion — making it the government’s third-biggest source of revenue.” And as Brian notes: simply hiking taxes on dividends doesn’t look like it would be enough to fill the hole.

The nonprofit issue again illustrates some of the hazards of tax reform. Taxing nonprofits on their dividends is another of those ideas that might have the blessing of economists, but would be a tough sell politically. And in finding a way to appease one politically potent group like small businesses, you might have picked a fight with another. (Keep in mind: there’s a reason most GOP presidential contenders have proposed keeping the charitable deduction.)

KEEPING SCORE OF SANDERS'S TAX PLAN: The tax debate in the presidential race is likely to heat up today. Brian reports this morning:

"Democratic presidential candidate Bernie Sanders has proposed raising taxes by $13.6 trillion, with more than half coming from widely paid payroll taxes, according to a new analysis.

The cost of Sanders' plan would dwarf the one backed by rival Hillary Clinton, based on an analysis released today by the conservative-leaning Tax Foundation.

The wealthy would take the biggest hit under Sanders' plans. But a majority of the revenue raised — $8.3 trillion — would actually come from increasing broad-based payroll taxes that would boost rates at all income levels.

Those tax hikes would reduce economic growth by 9.5 percent over the long term, the Tax Foundation said, which would reduce after-tax incomes for all workers. The top 1 percent would see their earnings fall by as much as 25 percent."

IT’S WEDNESDAY, and we’ll admit to being one of those people who will just let the combination of the weather and time dig our car out. Shoot us a line with tips, thoughts and feedback, whether you’re back in the office or not. Email: [email protected], [email protected], [email protected], [email protected]. Twitter: @ berniebecker3, @ tobyeckert, @ brian_faler, @ katyodonnell_ , @ POLITICOPro and @ Morning_Tax.

EU TAX DRAMA: You probably should have already guessed that Europe was pretty serious about cracking down on corporate tax avoidance, but POLITICO Europe's Nicholas Hirst has more on a new draft law that seeks to puncture the complicated tactics companies are employing:

“The new rules would allow national treasuries to tax European profits that are allocated to low-tax jurisdictions and introduce a mandatory exit tax on assets transferred to tax havens such as Bermuda,” Nicholas writes.

The new law also comes just after Google and the United Kingdom reached an agreement on back taxes, and as Europe is investigating corporate giants like Apple and McDonald’s. But the key, Hirst writes, could be whether European countries will hold hands and jump together on new rules or if individual countries will see the potential euro signs of trying to lure new corporate investment. http://politico.pro/1PD0eUf

The European initiatives are already getting some pushback from the multinationals who could end up paying more. “This is the latest example of the aggressive moves being made abroad in an effort to tax even more American earnings, and use them to pad the coffers of foreign governments,” said Lisa Camooso Miller of the American Innovation Matters coalition, which includes Apple, Boeing, Cisco and Facebook.

GOOGLE'S U.K. DEAL SCRUTINIZED: Speaking of Google: Hirst also writes that the search engine’s deal with Britain isn’t sitting well with the European Parliament, six of whose tax committee members want more of an explanation.

"If Google is going to negotiate with one country after another, it becomes ridiculous," said Alain Lamassoure, chairman of the special tax committee.

Nicholas with more: “Google's U.K. deal justified calls made by his committee's for reforms to Europe's tax systems, he added. He said he would consider arguments to recall Google, as well as the U.K. government, before the committee. But above all he is counting on the European Commission's new anti-avoidance tax directive, which will be unveiled Thursday, to help close loopholes multinationals can exploit to skirt taxes in countries where they do business.” http://politico.pro/1PHBBvO

BACKING AWAY FROM BERNIE: Well, it certainly didn’t take long for Bernie Sanders’ “everyone gets a tax hike” platform to get some static from the Democratic power structure.

House Minority Leader Nancy Pelosi pooh-poohed Sanders’ proposal to move the U.S. beyond Obamacare and to a single-payer system, a transition that would require broad tax increases on much of the population. (They’d get lower health care costs in the process.) “We're not running on any platform of raising taxes,” Pelosi said at the House Democratic retreat in Baltimore, per our pal Mike Lillis. http://bit.ly/1SklB1F

We’re assuming Pelosi means Democrats don’t want to raise taxes on the middle class. (Otherwise, Pelosi would be breaking with President Barack Obama, who won two terms explicitly calling for tax hikes on higher earners. And Hillary Clinton, who’s calling for more of those tax increases right now.)

Anyway, Pelosi’s comments underscore that there have been plenty of good political reasons for Democrats to limit their tax increase proposals to the wealthy, an idea that polls decidedly better than tax increases on middle-income taxpayers.

Sanders cast his health care plan in perhaps his bluntest terms yet at a CNN forum earlier this week: “We will raise taxes. Yes, we will.” The Washington Post’s Paul Kane gets at some of the challenges the Vermont senator faces in seeking to push many Democratic office holders out of their comfort zone on tax hikes. “Pelosi’s position echoed some of the themes that former Secretary of State Hillary Clinton has hit on in trying to say that Sanders’ ideas, while appealing to liberals’ instincts, are out of touch in an era when Congress is so sharply divided.” http://wapo.st/1NBCPRL

SAY HELLO TO THURSDAY. We’ve officially run out of things to say about the snow, so we won’t even try. We will, however, try to lure some more tips out of you. Email: [email protected], [email protected], [email protected], [email protected]. Twitter: @ berniebecker3, @ tobyeckert, @ brian_faler, @ katyodonnell_ , @ POLITICOPro and @ Morning_Tax.

PSA: The Tax Foundation will release its take on Sanders’ tax plan this morning at 9 a.m., just a couple days after it took a dim view of Hillary Clinton’s tax hikes aimed at higher earners. Liberals have historically been pretty skeptical of the free market-friendly foundation’s modeling, so it would be quite the upset to see the group have all that many nice things to say about the Vermont senator’s plans.

THE PERILS OF CORPORATE INTEGRATION: Senate Finance Chairman Orrin Hatch might be facing quite the political pickle as he tries to work out a plan to end the double tax on corporate integration. Our Brian Faler reports that Hatch might have to raise taxes on the nonprofits — even churches — that frequently serve as corporate shareholders to actually ease the burden on corporations. Otherwise, Brian says, the idea might be a huge revenue loser.

Taxing nonprofits on their dividends is another of those tax reform ideas that might have the blessing of economists but would be a tough sell politically. “If Hatch opts to charge nonprofits on their dividends, he'll likely argue they'll be no worse off than today. That's because companies will have an incentive to pay out bigger dividends, so it could end up being a wash for the nonprofits,” Brian writes. http://politico.pro/1PkH1ea

THE MORE THINGS CHANGE … : We’ve talked quite a bit about what a Republican winning the White House might mean for tax policy. But if it’s a Democrat? You might be seeing some more executive actions.

Both the Clinton and Sanders camps told Bloomberg that they’d use their executive powers, if need be, to roll back the preferential tax treatment of carried interest, an incentive especially attractive to private equity. (That probably wouldn’t be without a fight, given that they’d be basing their authority on a three-decade-old statute allowing Treasury to designate fund managers as service providers.It should also be noted that former Treasury Secretary Tim Geithner, at least, downplayed the possibility of tackling carried interest via regulation.) President Barack Obama’s Treasury Department has hinted that they’ll take action against the tactic known as earnings stripping, but Clinton and Sanders also sound more than open to further executive action to battle corporate inversions. Bloomberg story: http://bloom.bg/1nQfw1L

PRIVATE EQUITY HIRES A BIG GUN: It’s an especially precarious time for carried interest, with even Republicans like Donald Trump and Jeb Bush joining Democrats in calling it an unfair advantage for the 1 percenters. So Mike Sommers, who served as chief of staff to former House Speaker John Boehner, has some tough work ahead of him in his new role as chief executive of the Private Equity Growth Capital Council. More on that from Colin Wilhelm at Pro Financial Services: http://politico.pro/1Pkd25Y

FILED UNDER HEADLINES YOU DIDN’T EXPECT TO SEE TODAY: “The World’s Favorite New Tax Haven Is the United States.”

Bloomberg’s Jesse Drucker writes that the U.S. is becoming quite the destination for foreigners who are looking to hide their fortunes from their own governments. That’s in large part because the federal government is resisting the information sharing standards created by the Organization for Economic Cooperation and Development. And that’s also led to scenes like this: Rothschild, which agreed to pay a penalty to the U.S. under a Swiss bank program fighting tax evasion, now has set up shop in Reno, Nev., where it’s doing things like moving money here from the Caribbean for families from Turkey and Asia. (Other offshore artists have moved to South Dakota, which is also promoting its prowess at protecting confidentiality.)

Those banks say there’s legitimate reasons that rich clients want that kind of privacy, including insulating yourself from blackmail or kidnapping. But Drucker writes that banks also haven’t been shy about pointing to the U.S. as an area with potentially slack tax enforcement, the irony of which has left some of America’s targets for tax evasion investigations shaking their heads. “How ironic — no, how perverse — that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour,” said one Zurich-based lawyer. Much, much more here: http://bloom.bg/1nxijNq

THE OLD SCHOOL TAX HAVEN: Coincidentally enough, the Justice Department announced Wednesday that it was bringing to a close an initiative where the U.S. agreed not to prosecute Swiss banks that helped facilitate tax evasion, in exchange for financial penalties and a full accounting of the bank’s actions. I’ve got more here on the roughly 80 agreements that the federal government reached over the past 10 months, resulting in well over $1 billion in penalties. http://politico.pro/1SKS7LV

So what’s the next phase of the federal government’s battle against offshore tax evasion? A Justice spokeswoman said the department would be working with the IRS to comb through all the information it received from the Swiss banks. “The department has become well-versed in the ways taxpayers, legal and financial professionals, and foreign financial institutions concealed foreign accounts and evaded, or assisted others in evading U.S. tax,” said the spokeswoman, Nicole Navas. “Based on this information, the department and the IRS are actively pursuing criminal and civil investigations involving foreign accounts around the world.”

** A message from Intuit Tax and Financial Center: Last year, 109 million federal filers received refunds totaling more than $125 billion. However, criminals will attempt to steal tax refunds. As the makers of TurboTax, we at Intuit believe each of us has a special responsibility to help combat tax fraud: http://bit.ly/1QjRXYk **

THE EUROPEAN CRACKDOWN: Europe’s efforts to stamp out tax evasion will include limiting interest deductibility and installing an exit tax, according to MNE Tax. More here: http://bit.ly/1nQjF5C

Those initiatives are already getting some pushback from the multinationals that could end up paying more. “This is the latest example of the aggressive moves being made abroad in an effort to tax even more American earnings, and use them to pad the coffers of foreign governments,” said Lisa Camooso Miller of the American Innovation Matters coalition, which includes Apple, Boeing, Cisco and Facebook.

BIPARTISAN DUO PRESSES FOR MORE ON SSDI: Sens. James Lankford (R-Okla.) and Joe Manchin (D-W.Va.) are out with a new letter pushing the leaders of the Finance Committee for a more top-to-bottom revamp of the Social Security Disability Insurance program. The 2015 budget deal gave the SSDI program a little more breathing room, partially through a transfer of payroll tax revenues. “We hope you agree that more substantial reforms are needed,” Lankford and Manchin wrote.

THE NAM ROAD TRIP: Jay Timmons, the president of the National Association of Manufacturers, hits the road today to lay out the group’s political agenda for this presidential year. “To unleash a wave of job creation and growth, we have to fix our broken, decrepit tax code. Companies in America pay a higher tax rate than their competitors in every other developed, major economy,” Timmons will say on a tour taking him to seven states.

INTERNATIONAL NEWS —

WHAT’S THE MATTER WITH BELGIUM?: Certainly not the beer. But our European colleagues report that the Belgian government isn’t exactly putting up a united front on a financial transaction tax, with the prime minister sounding decidedly more excited about the prospect than the financial minister. http://politico.pro/1npnL4a

And Belgium is lobbying the European Commission to reverse the ruling demanding that it claw back hundreds of million of euros in taxes from multinational corporations. http://politico.pro/1PG4eJF

STATE UPDATE —

MOST STATES HAPPY WITH REVENUE, BUT WEAK FORECASTS SPUR CAUTION: For most states, such as California and Virginia, budgets appear to be in the black, but estimates of poor economic growth are prompting states to spend judiciously or to stockpile money, Stateline reports. Lawmakers in states that are in the red are looking to raise sales taxes, although they could be a meager source of revenue. Oil-rich states such as Alaska, Oklahoma and Louisiana are seeing their revenues from energy taxes diminish as oil dips to $30 a barrel. “Many forecasters are predicting an economic downturn in the next couple of years, which has made many states reluctant to commit to big, expensive programs — even if they have a surplus. Recent volatility and losses in the stock market foreshadow less income tax revenue. And the trend in sales tax receipts is weakening, as consumers turn to untaxed Internet sales and cautious buying habits.” The full story: http://bit.ly/1ZTtdcb

LIVE FROM BRUSSELS: SAFE HARBOR, EU BAILOUTS AND A BELGIAN ALE : Do you have access to in-depth reporting about big decisions shaping the EU? POLITICO Pro, POLITICO’s premium subscription service, teamed up with POLITICO Europe to bring you Pro’s Europe Brief. Europe Brief draws on POLITICO resources in both Brussels and D.C. to provide you with the updates and analysis you need to stay a step ahead of of all things happening across the pond. Try it for free! Download a complimentary issue of Europe Brief today.

QUICK LINK

— Direct cash payments to the poor, an alternative to tax breaks, has its own downsides. http://bit.ly/1OESnIg

DID YOU KNOW? The U.S. diplomats known as the “Tehran Six” flew out of Iran 36 years ago today, after evading capture when militants captured the American Embassy and receiving assistance from the Swedish and Canadian embassies. That flight out was dramatized in the movie "Argo."

** A message from Intuit Tax and Financial Center: Our challenge today is to protect and secure our nation's information and systems — and taxpayers as well — against international criminals, fraudsters and other wrongdoers. Last spring, the IRS brought together state tax officials and the nation’s leading tax return preparers and software developers, including Intuit, to create and agree on new anti-fraud measures to protect taxpayers. Together we are working to authenticate legitimate returns without unnecessarily delaying the timely refunds of deserving taxpayers, protect the nation's tax information technology infrastructure, and better inform taxpayers about how to protect their sensitive personal, tax and financial data. From government and industry, to every business and individual in the country, each of us plays a role in combating tax fraud. With everyone doing their part, we believe this is a fight that can and will be won: http://bit.ly/1QjRXYk **

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