Business Awaits Trump Changes
After winning elections most President-elects immediately begin dialing back their campaign promises. Not so with President-elect Trump.On his “Thank you” tour, Mr. Trump didn’t back down from his campaign promises. He double-downed, telling cheering crowds in North Carolina, Iowa, Louisiana, and Michigan that he will cut business regulations and repeatedly renewed a promise for major tax reform — specifically slashing the business tax to 15%. Though the term business tax is loosely thrown around, it is the 35% corporate tax rate to which he is referring.
The 35% U.S. federal corporate tax rate is the highest among industrialized nations. Cutting it would certainly benefit “C-corporations” — traditionally structured corporations that are taxed as separate entities. It would make U.S. corporations more globally competitive and provide great incentive for those companies to stay and grow here in the United States. It would help make inversions obsolete. But it would provide no benefit to all the businesses structured as pass-through entities.
Since the 1980s, the number of traditional C corporations has shrunk while the total number of pass-through businesses has tripled to over 30 million. Today, there are 1.7 million traditional C corporations, compared to 7.4 million partnerships and S corporations, and 23 million sole proprietorships.
Obviously, all these pass-through businesses will not enjoy benefit from a lowered corporate tax rate because they do not pay corporate taxes; the owners/partners/members of pass-through entities report their business profits on their individual income tax returns (1040) and are subject to individual income tax rates.
For individual filers, the new administration is promising tax reform, including simplification (three tax brackets), and large tax cuts. Although high earners would benefit under candidate Trump’s original tax reform plan (posted on his website), the President-elect has used more exclusive language, referring to “middle-class” tax cuts on his Thank-you tour. Upon his nomination to head the Treasury, Steve Mnuchin made clear that he will be taking a revenue-neutral approach to individual high earners. This might take the form of a lower tax rate, accompanied with the elimination or phase-out of various deductions. High earners may see simplification, but no net benefit.
Aside from all the talk, any chance for major tax reform must come through Congress. Due to somewhat archaic Senate rules, the path to a corporate tax rate of around 20% is a much easier path than 15%, but still globally competitive. We expect a comprehensive tax legislation package to emerge very quickly. In the meantime we’ll keep our eye on Capitol Hill and watch how sausage is made.
Besides tax relief, the greatest change for small- and mid-cap companies will be the fulfillment of Mr. Trump’s promise to “…eliminate every single regulation that hurts our farms, our workers and our small businesses.”‘
The 2010 Dodd-Frank law is definitely in the cross-hairs. At this point, however, we still think repair is more likely than repeal. Banks have been working closely with regulators these past six years, honing regulations into a form they could live with. Though they would like to see several specific rules removed, they are not passionate about scrapping the law all together. Most would be satisfied if existing regulations could be made simpler, less costly… and if they could see no new rules for a while.
Same story among non-financial sector CFOs who see many of the rules as costly, time-consuming and of little value to investors, but see other rules as reasonable. Without a strong rally from the business community, it will be very difficult to muster the necessary votes in the Senate to entirely kill Dodd-Frank. We suppose major repair might be close enough to fulfill Mr. Trump’s campaign promise to “dismantle” Dodd-Frank.
We think most deregulation will come by way of executive order. We’ve already seen how much can be done by the stroke of a pen under the Obama administration, and fully expect that much will be undone by the stroke of a pen. We suspect the Trump administration is already stocking up on ink. They may even take a page from the Reagan administration with the creation of a deregulation task force led by a cleaver-wielding Vice President.
Finally, the Trump transition team is in the process of assembling its cabinet. As we said in the last issue, we are closely watching the picks. What happens in Congress will make the news, but legislation by its nature is often broad-brushed. It is in the government agencies where regulation writers and regulation enforcers are given their marching orders. The picks and appointments to head those agencies tell us much about what’s ahead.
Nominating Andy Puzder, CEO of CKE Restaurants Holdings Inc. for Labor Secretary, Oklahoma Attorney General Scott Pruitt to head the EPA, and former Texas Governor Rick Perry for Energy Secretary, all outspoken critics of the agencies they would run, tells us that major change is on the way.
Can’t wait to see Mary Jo White’s replacement at the SEC.
About 75% of surveyed Human Resources executives say their companies will give their workers bigger year-end bonuses – up 67% from last year, according to staffing firm Accounting Principals. Their survey of 500 all sized U.S. companies found the average expected bonus will be $1,081. Nearly a third planned to give workers bonuses of $1,000 or more, while most planned to give between $100 and $500.
Corporations are retooling their lobbying efforts as they prepare for Republicans to control the House, Senate and White House come January, reports the Wall Street Journal. The expectation is that after six years of partisan gridlock, Congress will once again be processing legislation.
To get a sense of how much money will be spent “communicating” with Congress, the Center for Responsive Politics cited comparative figures from 2009 when President Obama entered the White House along with a Democratic-controlled House and Senate.
“In 2009 Corporations spent $556 million lobbying on health-related issues and $473 million lobbying on the financial and real estate industries. That marked jumps of $66 million and $17 million, respectively, in lobbying spending on those issues from the previous year.
“Some corporations and lobbying shops had bulked up their Democratic wings during the Obama administration and in anticipation of a victory by Democrat Hillary Clinton. Mr. Trump’s win means they need to restock their Republican operations,” reports the Journal.
That could mean a record high next year of lobbying spending, which totaled $2.3 billion in the first three quarters of 2016, according to the Center for Responsive Politics.
LA DOLCE VITA – FINITA!
Each day, on our way to the office, we hit Starbucks to get our venti, half-caff, mocha-latté. After a while and about five bucks later we’re sipping our lattés and feeing very European.
Five dollars is a lot for a cup of coffee — a price that would outrage our parents’ generation — but this isn’t your father’s cup of Joe. This is Starbucks: an Italian-esque cafe with live performance art; where millennials with skills, called Baristas, turn burnt offerings into creamy, blended, sugary creations.
There’s nothing like over-paying for a cup of coffee to make you feel like you’ve arrived. Maybe not in the top 1%, but still living the dream. Ahh, the sweet life. La Dolce Vita!
Now, some say Starbucks isn’t really in the coffee business at all. They’re in the milk & sugar business. Or, that its over-priced coffee appeals to the worst elitist tendencies within us. Nothing more than “rich privilege.”
To wit, we say, we’ve been coming to Starbucks for years, and we know bitter. And to those bitter have-nots, we say: We’ve earned our place in line. Go occupy Dunkin’ Donuts.
Recently we read some very disturbing news that Starbucks CEO Howard Schultz is stepping down to lead the company in building high-end coffee shops that will charge as much as $12 a cup.
First of all, we thought we were high-end. And secondly, TWELVE BUCKS A CUP??!!
That’s unfair! We can’t afford that! On top of that, we’d probably have to wait in a long line behind a bunch of elite elitists. La dolce vita – finita!
Okay people, it’s time to take to the streets and espress our melancholy feelings about our beverage oppressors.
But first, we must arm ourselves: Cuisinart, Krups, Keurig, even Mr. Coffee. We start by making our own coffee.
Then, in a frothy display of our upsetness, we meticulously choreograph and stage a spontaneous flash mob. We all show up with our own coffee, in our own recyclable cups, and sip it slowly, right in front of Starbucks. (Be sure to get close to the window so you can tap into their free Wi-Fi, and don’t forget to share your selfies on Instagram!)
Since we do not advocate violence, Facebook de-friending will be harshly frowned upon.
If we can take back our coffee, we can take back our dignity… and maybe, if you have one of those fancy coffee machines, you can make self-esteam too.
Once again, we come to the Holiday Season, a deeply religious time that each of us observes, in his own way, by going to the mall of his choice. Dave Barry
Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it. Richard D. Lamm
Simply the right choice
Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com
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