Gleaning insights from ‘Talking Tax’ participants during these unpredictable times

June 6, 2017

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By John Livingstone

Our learnings from several years of hosting our ‘Talking Tax’ Executive Webcast Series have been invaluable — not only for our clients, but also for broadening our own perspectives. I recently hosted our 26th installment — the focus of which was the likelihood of tax and healthcare reform in 2017 and the potential impact of proposed policy changes on US manufacturers. This framework allowed our panelists to address critical issues affecting tax in the context of adapting to change and managing risk.

Likelihood of tax and healthcare reform in 2017

During the first half of the webcast, my PwC colleagues, Scott McCandless, a Principal in our Tax Policy Services Practice, and Chantel Sheaks, a Director in our National Health and Welfare Practice, discussed the legislative paths available for tax and healthcare reform in 2017. Among our webcast attendees, 56% said that tax reform is the biggest priority for their organizations, with 9% saying that health care reform is their biggest priority.

The Trump Administration on April 26 released ‘core principles’ for tax reform and said that it would work with Congress to develop a unified approach to tax reform. The White House tax plan calls for a 15% business tax rate, adopting a territorial tax system, and imposing a one-time mandatory foreign repatriation tax. It does not address the House Republican Blueprint proposals for a border adjustment tax, full expensing of investments, or non-deductibility of net business interest expense.

The House of Representatives on May 4 passed the American Health Care Act (AHCA) to partially repeal and replace the Affordable Care Act (ACA). AHCA would eliminate, retroactive to the beginning of 2017, most ACA tax provisions. The Congressional Budget Office estimates that AHCA would result in $119 billion of net deficit reduction over 10 years. Joint Committee on Taxation staff estimates that the repeal of certain ACA tax provisions would cost $663 billion over 10 years. Senate Republicans currently are working on ACA repeal-and-replacement legislation that could be substantially different than the House-passed bill.

The White House on May 23 released the President’s FY 2018 budget plan, which proposes to achieve a balanced budget over 10 years through a combination of economic growth and reductions in federal spending. The budget assumes that tax reform and other policies will result in 3% GDP growth. It does not provide additional details regarding the White House tax reform plan released in April.

Potential impact of proposed policy changes on US manufacturers

Joining me on the panel for the second half of the webcast was Bob McCutcheon, PwC’s US Industrial Products Leader, and Rajiv Jetli, Industrial Products Operations Practice and Advantaged Manufacturing CoP Leader. The focus of their discussion was the significant business implications proposed policy changes could have for US manufacturers. Following were some of the highlights:

  • Corporate tax reform: To prepare for various tax reform proposals (President Trump’s plan, House Republican Blueprint, and Chairman Camp’s 2014 Tax Reform Act), US manufacturers can: (1) model the impact (including the financial statement impact) of leading tax reform proposals; (2) reassess their global operating strategy; (3) consider the impact of the proposed changes to interest deductibility; (4) evaluate the impact of international tax reform proposals; (5) consider tax attribute planning; and (6) evaluate options to defer income and accelerate deductions.
  • Regulatory rollbacks: US manufacturers should consider potential implications of President Trump’s proposed regulatory rollbacks, including: (1) increased economic activity in the manufacturing sector; (2) increased exploration, development, and pipeline projects for the oil and gas industry; (3) new developments for downstream industries that consume output as feedstock into their manufacturing processes; and (4) a more cost competitive domestic manufacturing environment.
  • Infrastructure: US manufacturers can prepare for President Trump’s proposed infrastructure stimulus by: (1) understanding the potential implications on federal tax credits and incentives; (2) positioning themselves as a prime vendor candidates or investors; (3) preparing for operational and workforce scale-ups; and (4) analyzing upstream benefits in their supply chains.
  • Trade: Industry perspectives on President Trump’s proposed actions on trade include: (1) manufacturers are looking to pursue a more nuanced approach to trade with China and Mexico; (2) manufacturers have expressed concerns about economic uncertainty and trade threats; (3) domestic steel producers are considering potential benefits that may occur; and (4) other industries are weighing the impacts of imports and exports, and overall trade relations.
  • Military spend: Potential impacts of President Trump’s proposed increased military spend — which could increase the defense budget by hundreds of billions of dollars over the next few years — could be felt by defense contractors as well as their supply chains.

When webcast attendees were asked which of these five key policy areas are most significant to their organizations, 63% said tax reform, 7% said regulatory rollbacks, 5% said infrastructure, 4% said trade, and 1% said military spend. While these key policy issues are obviously important factors to be considered in making important business decisions, US manufacturers should consider them in light of other operational factors and broader macroeconomic changes.

I look forward to the ongoing dialogue during on our next webcast, which is planned for July 11, 2017. Stay tuned for further details.

 

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