1. Tax Reform Act of 2017 Can It Happen Here?
Kirk J. Stark
Barrall Family Professor of Tax Law and Policy
UCLA School of Law
January 2017

2. Structure of Remarks The New Political Landscape Polling Data
2015 (Pew): popular opinion on U.S. tax system and tax reform
2017 (Pew): popular opinion on political influence in Trump era
2017 (Harvard) : popular opinion on tax reform in Trump era
Specific Tax Reform Proposals from:
Trump campaign proposals (Revised September 2016)
House GOP (Ryan/Brady June 2016 “Blueprint”)
Senate GOP (Hatch)
Projections about tax reform in 2017 or beyond.
1. There appears to be broad popular political support for significant tax reform.
2. Not surprisingly, given that this is an election year, presidential candidates are tapping into that popular sentiment.
3. We will look at the tax proposals of six candidates: four Republicans and two Democrats. As we will see, the details of these proposals or predictably underspecified. And it won't surprise you to learn that there isn't a very high noise to signal ratio in what the candidates are saying about tax policy. That said, we can detect some signals and some general directions to consider.
4. Next, even though it's early in the process, we will have a look at the most likely outcome for the 2016 election. More specifically, what I'd like to do here is to take a look at what the prediction markets are saying about the nominations for each party and the likely outcome of congressional elections.
5. With that information, we should be able to make some very rough and very imperfect projections about the likely direction of tax policy following the 2016 election.
6. Finally, in the last portion of my remarks, at which point you will be petitioning for me to sit down and shut up, i'd like to take a step back from the politics of the moment and the tax proposals on the table to have a broader look at the nature of the US tax system at this point in American history.

3. February 29, 2016
Possible Executive-Legislative Outcomes, (Very Loosely) Ranked by Likelihood
DEM President, DEM Senate, GOP House
DEM President, GOP Senate, GOP House
GOP President, DEM Senate, GOP House
GOP President, GOP Senate, GOP House
Notes
the most likely outcomes feature divided government
filibuster-proof Senate control very unlikely for either party
close 2016 margins will likely accelerate the political salience of future elections (2018, 2020, etc…)

4. Thumbs Up on Tax Reform? President Donald Trump Speaker Paul Ryan
Majority Leader Mitch McConnell
Treasury Secretary Steve Mnuchin
Senate Finance Chair Orrin Hatch
House Ways & Means Chair Kevin Brady.

5. 2015

11. 2017

15. 2017

20. State of Play // Current Proposals
Trump campaign
Individual –reduce/flatten rates, “simplify”
Business – underdeveloped (15%)
Estate tax – repeal (tax capital death)
House “Blueprint”
Individual – reduce/flatten rates, “simplify”
Business – border adj. corp cash flow tax (20%)
Estate tax – repeal
Senate (Hatch)
Business – Corporate tax integration

21. House GOP Proposed Individual Income Tax
Trump tax rates are SAME (possibly different breakpoints)
INCREASE STANDARD DEDUCTION: HOUSE = $24,000 (collapse w/ personal exempt), TRUMP: $15K/$30K
TRUMP: CAP Itemized Deductions at$100k/$200k
HOUSE: No more deductions for SALT, Medical, Casualty Losses
NEW Incentives for SAVINGS? – USA “Unlimited Savings Allowance”
AMT is GONE

23. Current v. Trump Proposed Tax Rates

24. Business Tax Proposals
Trump Campaign
15%
“all businesses, small and large, that want to retain the profits within the business”
(Ryan/Brady)
House GOP
20%
DBCFT: Destination based (border adjusted) corporate cash flow tax
Senate (Hatch)
__ %
Seems most interested in Corporate tax integration (see Treasury report, 1992)

25. Business Tax Proposals
Trump Campaign
15%
“all businesses, small and large, that want to retain the profits within the business”
(Ryan/Brady)
House GOP
20%
DBCFT: Destination based (border adjusted) corporate cash flow tax
Senate (Hatch)
__ %
Seems most interested in Corporate tax integration (see Treasury report, 1992)

26. Intellectual History of House GOP’s Corporate Cash-Flow Tax
Standard credit-invoice VAT
Tax each firm on receipts from other firms
Credit for VAT paid on inputs
Subtraction-Method VAT
Tax each firm on total receipts minus inputs
No deduction for wages
Hall-Rabushka “Flat Tax” // David Bradford’s “X Tax”
“Modified” Subtraction-method VAT (allow deduction for wages)
Paired with free-standing wage tax w/ household returns
2005 Growth and Investment Tax Plan
Variation of “flat”/ X-tax model
“destination-based” w/ border tax adjustments
Blueprint Destination-Based Corporate Cash Flow Tax

27. Key Features of House GOP’s Destination-Based Corporate Cash-Flow Tax
Replacement for corporate income tax
Only applies to corporations, not pass-through entities
Single rate – presently advertised at 20%
Replace depreciation with immediate expensing
Retain deduction for wages
(can be understood as a 20% “subsidy” for payroll, relative to VAT)
“destination-based”
No deduction for imports
Export revenue not included
Note: major legal questions here regarding WTO rules on permissibility of border adjustments for “direct” taxes

31. Current law: $10 trillion increase in federal debt over next decade

35. Will top individual tax rate be reduced in 2017?

36. Will top corporate tax rate be reduced in 2017?

37. Will carried interest be taxed as ordinary income in 2017?