BNA: House, Senate Jockey for Pass-Through Position Before Tax Talks

I spoke to Bloomberg BNA‘s Allyson Versprille about the pass-through state of play:

The pass-through approach in the final tax legislation is likely to be closer to the Senate’s version, according to Liam Donovan, a tax lobbyist at Bracewell LLP in Washington.

“Their package has cleared the all-important procedural traps under the Byrd Rule,” Donovan said. The Byrd Rule is a condition of the budget reconciliation process that prohibits legislation that increases the deficit outside the 10-year budget window.

The Senate bill would allow publicly traded partnerships (PTPs) to take advantage of the 23 percent deduction. The benefit wouldn’t extend to private equity firms classified as PTPs, such as Blackstone Group LP and Carlyle Group LP, but oil and gas firms classified as master limited partnerships (MLPs) would be able to take advantage of the deduction.

This change puts MLPs on a level playing field with similar entities, such as real estate investment trusts, Donovan said.

“Most MLPs are structured in a way that would have prevented them from taking advantage of the pass-through deduction created in the Senate bill,” he said.

The Senate bill would limit the deduction based on the amount of wages paid. MLPs, which pay their investors and their employees from separate entities, wouldn’t be able to avail themselves of the deduction without this provision in the legislation.

Read the full piece here.

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The Daily Beast: How Donald Trump Somehow Failed to Sell Massive Tax Cuts to Democrats

I spoke to Sam Stein from The Daily Beast about the GOP tax plan and why Red State Democrats have thus far proved resistant.

“My sense is that there is potential for a bit of a cascade should Republicans do the necessary lifting on their own,” said Liam Donovan, a Republican strategist. “It could get you from 50 to 53 or so. Generally I think the pressure is nonexistent until this thing is assured.”

But even then, Donovan added, the defining political feature of the tax debate may very well be that vulnerable Democrats felt such little pressure to support it at all.

Read the full piece here.

I told Sam, and I’d add here, that while Republicans probably could have done more to lure Dem votes, at the end of the day this is a reflection of the current political reality. We are polarized to the point where triangulation yields diminishing returns, particularly when the policy in question isn’t terribly popular. You don’t survive as a Red State Dem in 2017 by being GOP-lite, you do so by sticking to your guns and cultivating an authentic personal brand. The electoral fortunes of these members will hinge far more on macro factors than it will how they voted on any given piece of legislation. And for now at least, the big picture looks ok.

I’d add that I had my doubts from the beginning. From August:

Liam Donovan, a former National Republican Senatorial Committee staffer who now handles legislative and political affairs for the Associated Builders and Contractors, said estate tax repeal — which Republicans have promised to include in their effort — could be floated as a carrot in front of vulnerable Democrats like Manchin, Heitkamp and Donnelly to bring them to the table. Manchin was the lone Democrat to cross the aisle on a 2015 bill to repeal the estate tax.

But, “at the end of the day I don’t expect them to be there,” said Donovan.


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BNA: Passthrough Revisions Possible as Problems Plague Tax Plan

I spoke to Laura Davison of Bloomberg BNA about the Senate approach to pass-throughs and how it might evolve as the bill progresses:

Given the time constraints—Republicans hope to pass a bill by the end of the year—there’s not enough time to completely re-write the sections pertaining to passthroughs, so tax writers will likely have to make changes within the regimes that already exist. The Senate measure would provide a 17.4 percent deduction for passthrough income, which is then taxed at the individual rates. The House tax bill would allow businesses to subject 30 percent of their income to a 25 percent rate, or calculate an amount based on their income from capital assets.

“The way things are moving, I don’t know that there will be a chance to start from scratch,” Liam Donovan, a tax lobbyist at Bracewell LLP, said.

The most obvious ways to improve the Senate bill for passthroughs is to increase the deduction amount—now at 17.4 percent—or make the passthrough provisions permanent so they don’t continually need to be extended, Donovan said. The passthrough deduction would expire at the end of 2025, but the corporate cuts would be permanent in the Senate plan.

The Senate bill places very few restrictions on passthrough owners earning less than $250,000 as individuals, or $500,000 as joint filers. Service businesses can take the tax break and aren’t limited in the size of the deduction based on the wages they pay to employees. But imposing more restrictions may not be easy and could generate opposition to the bill.

“It’s not until you move up the scale where most of the growth and employment occurs that the restrictions kick in. I don’t know that there’s necessarily a way to ‘fix’ it, because this was a main feature of the modified mark,” Donovan said. “And part of it is just the inherent trade-off between the simplicity of a deduction versus the complexity of creating a new rate with the requisite qualifiers.”

Read the full piece here.

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