DOMESTIC AND FOREIGN TAX
Tax loophole could let wealthy tap 21% corporate rate
Bloomberg reports that an obscure tax provision from the 1960s could let wealthy individual investors seize for themselves the largest corporate tax cut in U.S. history. The measure, which was signed into law by John F. Kennedy, was intended to prevent Americans from indefinitely shielding themselves from taxes by keeping investments offshore. It forced them to pay taxes annually on these investments, but allowed them the option to have that income taxed at the corporate rate instead of at individual rates. For the past few decades, many Americans have little to reason to pick the corporate rate. However, that has all changed since President Trump’s tax law slashed the corporate rate to 21% - 16 percentage points lower than the top federal individual income tax rate. David Rosenbloom, a tax attorney for Caplin & Drysdale, said the loophole may be best suited to the wealthiest investors who don’t actually need access to the money.
Treasury publishes anti-inversion regulations
The Treasury Department has published the final version of regulations designed to limit U.S. corporations’ ability to engage in so-called inversion transactions that move their domicile abroad for tax purposes. In an inversion, a U.S. company takes a foreign address, typically through a merger with a smaller firm. The combined company could then lower its tax rates through internal borrowing and can more easily move non-U.S. profits around the world and back to shareholders while avoiding U.S. taxes. The regulations complete work started under the Obama administration and implement a proposed rule that led Pfizer and Allergan to scuttle a proposed merger in 2016. The rules may not mean much to companies, however, because inversion transactions have become much less frequent and because the benefits of foreign ownership are smaller than before the 2017 tax law. “It’s hard to see these regulations having much practical effect,” said Robert Willens, a New York-based tax adviser.
Wall Street Journal Law 360
Momentum behind new tax reform
Kimberley A. Strassel comments in the Wall Street Journal that momentum is building within the Trump administration for the President to enact a second powerful tax reform. She says forces are aligning behind a plan for the White House to index capital gains for inflation. Such a move is seen as long-overdue and one that would further unleash the economy and boost GOP election prospects. Americans for Tax Reform President Grover Norquist notes that part of the attraction of the reform is that all the Treasury has to do is issue a definitional regulation – no lengthy rulemaking is required. Strassel concludes that President Trump should have no trouble in introducing the reform, arguing that at present it is holding back the economy and unfairly burdening investors – small and big alike.
Wall Street Journal
GOP targets elections with further tax cuts
House Ways and Means Committee Chairman Kevin Brady (R-TX) says that his panel, and the White House, are considering a measure that would make permanent $1.1tn in tax cuts that were approved on a temporary basis in December for individuals, families and private businesses. The cuts are set to expire in 2025. The proposals are likely to be unveiled before Congress breaks up on July 26th for a summer campaigning break. “This is largely a 2018 re-elect-driven effort for House Republicans,” said Rohit Kumar, a tax policy expert at accounting and consulting group PwC and former senior aide to Senate Republican leader Mitch McConnell. Florida Republican Representative Carlos Curbelo, who sits on Brady’s committee, called the bill “a good second chapter for tax reform that’s going to help American families.”
CalPERS beats earnings targets
The California Public Employees’ Retirement System (CalPERS) has reported that it had seen an 8.6% return on investments for the fiscal year that ended June 30th – exceeding its expectation of a 7% return, and ahead of its forecasts for the second year in a row. The fund’s performance was driven by a solid performance in the stock market, as well as a 16.1% gain on private equity investments, and 8% on assets such as real estate and infrastructure. Dave Low, executive director of the California School Employees Association, one of the state’s largest public employee unions, said: “While it’s important not to focus on one-year returns, these returns continue the long-term trend of CalPERS performing above or near its long-term discount rates and once again defying the sky-is-falling predictions of system critics.”
Goldman Sachs has a remix
Goldman Sachs has confirmed that its next chief executive will be David Solomon, currently the investment bank's chief operating officer. His appointment, to take effect from October 1st, will end the tenure of Lloyd C. Blankfein, who has led the firm since 2006. The New York Times suggests Mr Solomon could have a transformative impact at the bank and his move into the top role will likely precipitate management changes in the upper ranks. “Organizations, to move forward, have to evolve, they have to change, they have to adapt,” Mr. Solomon said in a joint interview late Monday with Mr. Blankfein. The news of Mr. Solomon's appointment came as Goldman Sachs reported better-than-expected financial results. Many of the reports about Mr. Solomon note his musical interests: he is a keen DJ and recently released a remix of the Fleetwood Mac’s Don’t Stop.
New York Times The Guardian BBC News
Amazon boss is richest man in modern history
Amazon boss Jeff Bezos, 54, is the richest man in modern history with a fortune of $150bn, according to the Bloomberg Billionaires Index. His fortune is $55bn ahead of that of Bill Gates, who is the second-richest man on the index. Mr Bezos can be said to be richer than anyone else on earth since at least 1982, when Forbes first published its wealth ranking. It’s hard to even put it in perspective,” said Michael Cole, CEO of Cresset Family Office about Mr Bezos' net worth, adding “It’s such a staggering number.” The personal fortune of Mr Bezos is now within touching distance of the $151.5bn controlled by the Walton family, the world’s richest dynasty.
Retirement bills in Congress could alter 401(k) plans
Lawmakers are working on the biggest changes to U.S. retirement savings in more than a decade, exploring several proposals that could make it easier for small companies to offer 401(k) plans and for workers to guarantee themselves an annual income after they retire. Among the proposals Congress may consider are a new type of savings account that is more open-ended than current vehicles, ways to encourage savings that can be tapped in an emergency and the repeal of a provision that prevents people over age 70 ½ from contributing to traditional IRAs. The discussions are starting with a bill known as the Retirement Enhancement and Savings Act, or RESA, sponsored by Senate Finance Committee Chairman Orrin Hatch (R-UT) and ranking Democrat Ron Wyden (D-OR); it has the backing of AARP, an advocacy group for older Americans, which described it as “an important step to improving retirement policy.”
Wall Street Journal
“Darkening cloud” of tariffs hits consumer sentiment
The University of Michigan’s index of consumer sentiment has declined 1.1% in July, to 97.1. On an annual basis, it is up 4%. Economists expected a reading of 98.2, according to Reuters. Negative concerns about the impact of tariffs have recently accelerated, rising from 15% in May, to 21% in June, and 38% in July, the University of Michigan reported, with those concerns emanating in particular from households at the top third of incomes. Richard Curtin, the survey’s chief economist, described the tariff worries as a “darkening cloud on the horizon”.
CNBC Market Watch Wall Street Journal
IRS reduces donor reporting compliance rules
The Treasury Department has announced that the IRS will no longer require most 501(c) organizations to include donor names and addresses on their tax Form 990 Schedule B. Moving forward, only 501(c)(3)s that receive a tax deductible benefit will have to provide such donor information for amounts above $5,000, freeing some 45,000 non-profits from following the requirement. The groups will still have to keep donor information in their own records and make it available for the IRS when the agency needs the information in audits of taxpayers. House Ways and Means Committee Chairman Kevin Brady (R-TX) praised the guidance: "I applaud the Trump Administration for strengthening First Amendment protections and prioritizing personal freedom and privacy with this action,” he said.
The Hill Wall Street Journal
Rising transportation costs drive up business prices
The Labor Department’s producer-price index, a gauge of the prices businesses receive for their goods and services, rose a seasonally-adjusted 0.3% in June from a month earlier, driven in part by a rise in transportation costs. Rising prices for transportation and warehousing services helped push overall costs higher, as costs in this category grew 0.5% month-to-month and continued to climb higher on an annual basis. The cost of healthcare services rose 0.2% as a 1.0% surge in prices for hospital outpatient care offset slight declines in the cost of doctor visits and hospital inpatient care.
Wall Street Journal CNBC
Hiring retirees seen as key to fighting labor shortage
Employers are bringing recent retirees back to the workplace as they contend with an increasingly tight labor market. “Hiring back recent retirees appears more common than at any other time since the Great Recession,” says Kathleen Christensen, who funds research on aging and the American labor market at the Alfred P. Sloan Foundation, adding “Their skills are up-to-date, they possess critical institutional knowledge, and they can mentor younger workers." National Grid, an energy provider in New York State and New England, and United Parcel Service, are just two of the companies which are bringing back some retirees.
New York Times
Drop the pilot
The New York Times' Zach Wichter reports on cutting-edge autonomous flying technology being investigated by Airbus and Boeing. As thousands of pilots near retirement, some industry watchers worry about an imminent labor shortage - but experts say the technology, the industry and the passengers are not quite ready for self-piloting technology. Nevertheless, Boeing spokesman Paul Bergman says “The safe integration of unmanned aerial systems into national airspace is vital to unlocking their full potential,” adding “This year Boeing will explore the fundamentals of automating the manual airplane tasks that remain with the goal of enhancing safety and reducing pilot workload."
New York Times
Hot weather deters cognitive performance
A study has confirmed that heatwaves negatively affect performance. Harvard University scientists found students in hotter buildings performed worse in problem solving and memory tests compared to those with air conditioning. Data from this study and other experiments suggests humans work best at an optimum temperature. Jisung Park, an assistant professor of environmental health sciences at the Fielding School of Public Health at the University of California, Los Angeles said: "It's very consistent with other studies showing that hot temperatures, whether at home or in the classroom, can have a detrimental effect on learning."
Boston Globe Business Insider