That Democratic tax break for the wealthy Presented by the Land Trust Alliance

WHO’S LOOKING OUT FOR THE WEALTHY? You’ve heard Democrats rail against wealthy people — like GOP nominee Donald Trump, for instance — for not paying their fair share of taxes, and specifically against the preferential treatment of carried interest that hedge fund types get.

But what if we told you that there was a provision that allowed venture capitalists and other investors to pocket millions and millions of dollars without paying taxes — and it was created by Democrats.

As our Brian Faler notes, this gold mine for Silicon Valley is called an exclusion for “qualified small business stock” and had the backing of the Obama administration. It works by rolling back the capital gains taxes that many early investors would normally absorb after selling their stake in a company. (A person has to invest in a company worth less than $50 million, and hold that stake for at least five years — after that, they get to keep, tax-free, the larger of up to $10 million or 10 times their initial investment.) For venture capitalists, this sounds like a great way to incentivize investment. But others say it’s bad policy that got waved through because lawmakers are afraid to say no to small businesses.

RYAN CALLS HIS SHOT: The thing about budget reconciliation is that it doesn’t do a great job of reconciling the two parties.

The Pro Budget team’s Ben Weyl looks into how upfront Speaker Paul Ryan is about how he’ll ram through the House GOP’s plans for tax reform and repealing Obamacare, among other things, using a budget tool that would allow him to not even worry about wooing Democrats.

Of course, this strategy needs full Republican control to work, and Trump’s been lagging in the polls. But leading figures on the right, like Trump adviser Larry Kudlow and anti-tax activist Grover Norquist, say they’d love a full decade of the House GOP’s tax plan, which is when the new tax system would expire under the terms of reconciliation. "A 10-year tax cut is not a bad deal," Norquist said. "Very few things in life are forever."

A few asides: You might recall that there have been a few questions over the past year about just how much sway Ryan would keep over matters under the jurisdiction of the Ways and Means Committee, given his long-standing interest in those policy areas. Well, according to Tax Notes, the committee is still working under the assumption that there will have to be a meeting of the minds on tax reform. Barbara Angus, the chief tax counsel for Chairman Kevin Brady, told a conference just last week that the committee is working toward a 2017 tax reform that, “of course, will be bipartisan.”

Also: Sure, the Bush tax cuts were enacted through reconciliation. But some tax wonks will tell you it’s not the same to try to use a budget tool for full-scale reform. "Tax reform through reconciliation is just a terrible idea," Warren Payne of Mayer Brown toldyour Morning Tax author last year. "That's not like '01 and '03 when you're cutting taxes. You have to give people a couple years to transition into the new system. And then you have to turn around and give them a glide path to get out of the new structure."

IT’S THURSDAY, and we do care about you. It’s also been 67 years since Iva Toguri D'Aquino — you might know her better as “Tokyo Rose” — got a 10-year prison sentence for her propaganda broadcasts on Radio Tokyo. (Gerald Ford pardoned her in 1977.)

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RUNNING OUT OF TIME: House Republicans just made what might be their last public effort to urge the Obama administration not to finalize those controversial earnings stripping rules, our Katy O’Donnell reports. GOP tax writers told Treasury Secretary Jack Lew and Shaun Donovan, whose Office of Management and Budget just received the final rules, that the proposed regulations needed to be thrown out and the administration needs to do more consulting with the business community.

The Republicans, who want another set of proposed regulations, also said the rules should get a thorough economic analysis. The final regulations sent to OMB were classified as economically significant, meaning that Treasury needed to include a detailed evaluation of the costs and benefits.

And as you’d expect, it’s also becoming nail-biting time for those outside the halls of Congress who have been leaning on Treasury to make changes to the rules. Tax Analysts, for instance, reports that practitioners are really hoping that the final regulations will have less of an impact on cash pooling, which has been one of the central complaints that business groups have been sending to Lew and his team. (To be fair, Treasury has acknowledged that they need to take a look at the cash pooling implications.)

UP BECOMES DOWN: Trump’s made trade the centerpiece of his campaign, and specifically the idea that bad trade deals and an unlevel playing field are imposing a trade deficit that’s dragging down the U.S. But The Wall Street Journal’s Greg Ip maintains there’s a certain irony to that, because another key plank of Trump’s plan — a tax cut worth trillions of dollars — would have the opposite effect of closing down a trade gap. “Conventional economics predict that the Republican presidential nominee’s deficit-financed tax cut would drive up interest rates, sucking in foreign capital and driving the dollar higher. The result would be higher imports, weaker exports and more foreign debt than otherwise, developments likely to intensify Mr. Trump’s protectionist instincts.”

STAY TUNED: You might recall both Democratic nominee Hillary Clinton and her running mate, Tim Kaine, have plugged their plans to cut taxes for the middle class. But while the Clinton campaign has released some targeted tax relief measures for families, it has yet to roll out the sort of broader middle-class tax cut that many have expected. Now, after Kaine broached the topic in Tuesday’s vice presidential debate, The Washington Examiner’s Joseph Lawler reports that a Clinton staffer declared that the team has “been building on our proposals and clarifying them as the campaign progresses. So, I'm sure we will discuss this more but just not sure when."

A message from the Land Trust Alliance: Congress: Support conservation; enact S. 170/H.R.1992. The Land Trust Alliance and our 1,000 member land trusts welcome the Senate Finance Committee’s report on abuse of the federal conservation tax incentive. The bipartisan study concluded the egregious, ongoing abuse must end – and makes it clear why Congress must take action now. [Learn More]

THE 47 PERCENT: Make that 44.3 percent. The Urban-Brookings Tax Policy Center is out with new estimates for the amount of households that don’t pay income taxes, a statistic made forever famous by Mitt Romney four years ago. (Alright, maybe not forever.)

Not surprisingly, the vast majority of households making under $40,000 a year aren’t paying income taxes, even if they largely pay sales taxes, payroll taxes and other levies. But even about 1 in 8 households making between $75,000 and $100,000 a year aren’t paying income tax, and there’s apparently 1,000 households out there making seven figures that have found a way around income tax, too.

ABOUT THAT INFASTRUCTURE: S&P Global is throwing its hat into the infrastructure debate, Katy also reports — pitching the idea of ending the tax on multinationals’ repatriated earnings altogether, in exchange for the promise that 15 percent of the money would go to infrastructure bonds. The group said the return on investment for corporations would potentially be good enough for them to actually take part, and that getting private capital involved could help break the gridlock on an issue where there’s bipartisan interest in getting something done.

AS IF ON CUE: Pro Transportation’s Lauren Gardner notes that lobbyists aren’t giving up on getting Washington to boost the gas tax, but they’re also not blind to the fact that their efforts on that front haven’t been very successful so far. The problem: While transportation advocates know they should be pitching other ideas for long-term funding, they’re also well aware that repatriated funds would be a one-time shot in the arm, and not sure where else to turn.

AN ESTATE TAX RETORT: Rep. Kristi Noem of South Dakota, a GOP tax writer in the House, recently wrote an op-ed for Fox News detailing how hard the estate tax hit her family after the death of her father. Now, Americans for Tax Fairness is taking aim at Noem for what it says are misleading statements about Clinton’s estate tax plan, and noting that the estate tax exemption was $600,000 when Noem’s father died. (It’s at least $5.45 million now.) “It’s important to note that it has not been shown that a single family farm has ever been lost as a result of the estate tax,” said the group’s Frank Clemente.

INTERNATIONAL UPDATE —

NOT QUITE TRILLIONS: The German governing coalition — the conservative Christian Democrats and their junior partners, the center-left Social Democrats — have agreed on a package of tax cuts that could be worth 6.3 billion euros ($7 billion) per year, Reuters reports. Some of those tax cuts will also sound familiar to American tax watchers, including a plan to stop the so-called bracket creep that occurs when a taxpayer gets sucked into a higher tax bracket because of inflation. More robust tax benefits are also included in the plan, from Finance Minister Wolfgang Schaeuble, that the German Cabinet will consider next week.

THE CASE FOR SOFTENING THE BREXIT: The British finance industry could lose more than $48 billion (38 billion pounds) worth of revenue in a so-called hard exit from the European Union, Reuters reports via a study that was admittedly sponsored by an industry group. (A “hard” Brexit basically means that the U.K. would give up full access to the single European market.) With London at its center, the U.K. financial industry is both the country’s biggest export sector and provider of tax revenue.

STATE NEWS —

IT’S NOT DELAWARE’S FAULT: That’s the case that a new Atlantic article makes — that the other 49 states are playing a pretty substantial role in submitting to Delaware’s lax tax laws that have made it a magnet for businesses. Delaware doesn’t tax intangible assets, which allows companies headquartered elsewhere to set up subsidiaries in the state where they transfer property like trademarks. “Since intangible assets are not taxed in Delaware, the company doesn’t have to pay taxes on the money that was transferred to the subsidiary. The company can deduct the cost of the royalties on its state returns in other states where it operates, and thus avoid a large share of the state income taxes it would have otherwise owed. It is the laws of states other than Delaware that allow this system to work,” Alana Semuels writes.

QUICK LINKS

— Jersey showdown rescheduled: Gas tax hike vote rescheduled for Friday.

— Danish central bank unnerved by government proposal to pare back property taxes, fearing housing bubble.

DID YOU KNOW?

Ginza, Tokyo’s main shopping district, means “silver guild” in Japanese. It’s located in the area where the Japanese government transferred its silver mint in 1612.

Follow us on Twitter Toby Eckert @tobyeckert



Bernie Becker @berniebecker3



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