Brian Dake

Republicans Strike Deal on Sweeping Tax Overhaul

Republicans struck a deal on a sweeping tax overhaul Wednesday, including steep corporate and individual rate cuts, and hope to have legislation on President Donald Trump’s desk by next week.

The agreement includes a 37 percent top tax rate for individuals, Senate Majority Whip John Cornyn (R-Texas) said, lower than either the House or Senate called for earlier. The corporate tax rate would be 21 percent, higher than the 20 percent in each chamber’s separate legislation, and would start in 2018 instead of being delayed until 2019 as the Senate proposed.

“Pass-through” businesses that pay taxes through the individual side of the tax code would get a 20 percent deduction, and businesses would get to immediately write off investments for the next five years. The corporate alternative minimum tax, which business groups had fought hard to get squelched in a final deal, is out, sources said. The AMT for individuals is retained, though fewer people are expected to pay it as the exemption would be raised to $1 million for couples.

The estate tax, long a target for elimination by Republicans, would be kept, Cornyn said, though the exemption would be doubled.

The final legislation would also end Obamacare’s mandate that all Americans have health insurance or face a fine.

There was also a deal to allow homeowners to deduct the interest on up to $750,000 in mortgage debt, down from $1 million now. Negotiators dropped a House plan to tax as income college tuition waivers for graduate students working as teaching or research assistants.

That agreement would allow taxpayers to choose a property tax deduction along with either an income or sales tax deduction, with a $10,000 limit, according to a source familiar with the plan.

Republicans plan to release the details of the agreement by the end of this week, a GOP aide said. They still need to finish writing the legislative text, and get a final budgetary accounting by the official Joint Committee on Taxation.

Federal Tax Debate Update

President Donald Trump plans to make what his staff members called a “closing argument” for tax-overhaul legislation Wednesday as congressional Republicans consider last-minute revisions to key provisions. Here are the latest developments, updated throughout the day:

  • Cutting the top individual income tax rate to 37 percent, which would help address top earners’ complaints about losing certain tax deductions, but could also damage claims by Trump and others that the measure is mostly aimed at middle-class relief.
  • Setting the corporate tax rate at 21 percent, instead of the 20 percent proposed in both the House and Senate bills. The current corporate rate, 35 percent, is the highest among industrialized economies. Trump had initially sought a 15 percent rate, then said he wouldn’t accept any rate higher than 20 percent. But earlier this month, he suggested he was open to a number as high as 22.
  • Adopting the Senate’s general method of cutting tax rates for partnerships, limited liability companies and other so-called pass-through businesses, but revising the particulars. The Senate bill would create a 23 percent deduction for pass-through business income, but a potential compromise would cut that deduction to 20 percent. Combined with a lower individual income rate, the change would still provide roughly the same amount of relief for owners of the most lucrative pass-through businesses.
  • Capping the mortgage-interest deduction at loans of $750,000 or less. The House bill proposed a cap of $500,000. The Senate bill left the current $1 million cap in place.

Negotiations remained fluid Tuesday night, and details were subject to change. Final compromises may emerge Wednesday ahead of a planned public meeting of a joint House and Senate conference committee that’s charged with preparing the final, compromise legislation.

“If everything works right,” the Senate would vote on the final package Monday, the House would vote Tuesday and Trump would sign the bill by Wednesday of next week, said House Majority Leader Kevin McCarthy of California.

Local Government Officials Designate “Dark Store Day” to Draw Attention to Harmful Tax Shift

To draw attention to a loophole utilized by big-box commercial retailers to significantly reduce their property tax assessments, local government officials have designated December 11, 2017 as “Dark Store Day.”

Local officials statewide are calling on state legislators to stop this tax shift to other taxpayers, mainly homeowners, by scheduling a vote in January on Senate Bill 291 and Senate Bill 292, which close the dark store loophole.

“As local officials, we are calling on our state legislators to stop this tax shift,” said WCA Executive Director Mark O’Connell. “We are requesting they schedule a vote in January on Senate Bill 291 and 292.”

SB 291 closes a gap in Wisconsin’s property assessment laws that allow single tenant commercial properties, like Walgreens and CVS, to argue that the value of their property is not what it appears to be. As a result of a 2008 Supreme Court ruling, chain drug stores have been paying taxes on their properties in Wisconsin at half their actual fair market selling price; a discount unavailable to residential and owner-occupied commercial properties.

SB 292 nullifies a related but different tax avoidance tactic. National big box retail chains and other commercial property owners are challenging their assessed values using the “Dark Store Strategy” to argue that their thriving businesses must be assessed for tax purposes as though they were a vacant, boarded up property. The Indiana legislature and Michigan courts have recently invalidated the dark store theory in those states. SB 292 makes it clear that the Dark Store loophole is closed in Wisconsin.

“Without a doubt commercial businesses provide value to local communities. However, property taxes are needed to provide services local taxpayers and businesses require and expect,” said O’Connell. “This issue is not about local governments collecting more in property taxes. Plain and simple, this is about keeping property tax bills as equitable and low as possible for all taxpayers, not just commercial retailers.”

Wisconsin Governor to Sign Bill Lifting Mining Moratorium

Governor Scott Walker plans to sign a bill lifting Wisconsin’s moratorium on gold and silver mining.

The Republican governor is scheduled to sign the “Mining for America” bill Monday in Rhinelander.

Walker voted to impose the moratorium when he was in the state Assembly in 1998. But his spokesman, Tom Evenson, has said Walker believes mining can be done without harming the environment.

Under current state law, sulfide mining applicants had to prove that similar mines have operated and been closed in North America without polluting. Wisconsin regulators have never issued a final determination that any mining applicant has satisfied the requirements, leading critics to label the requirements a de facto ban on sulfide mining. The new bill eliminates the requirements.

Governor Calls on the FCC to Expand Broadband by Advancing Television White Space Technology

Governor Scott Walker today called on the Federal Communications Commission (FCC) to finalize rules increasing access to broadband internet by advancing television white space technology. Television white space is the unused spectrum between broadcast television stations which can deliver high-speed internet to underserved areas of Wisconsin.

“Fast, reliable internet access has the power to help businesses reach new markets, create jobs, and improve educational opportunities by connecting students in innovative and engaging ways,” said Governor Walker. “Our budget provides an additional $35.5 million for broadband expansion, but there is an opportunity to do more, which is why we are calling on the FCC to finalize rules advancing this technology.”

The FCC is considering rules which could result in at least three white space channels in every U.S. market to provide broadband Internet. If approved, the private sector is poised to provide underserved communities with access to robust, affordable broadband.

Legislative Leaders Announce Blue Ribbon Commission on School Funding

The leaders of the Wisconsin State Legislature are creating the first ever legislative commission, the Blue Ribbon Commission on School Funding. Under the leadership of co-chairs Rep. Joel Kitchens (R-Sturgeon Bay) and Sen. Luther Olsen (R-Ripon), the commission will examine how tax dollars are distributed to schools and make recommendations to better meet the needs of students across Wisconsin.

“The school funding formula was first created in the 1970’s and a review hasn’t been done in 20 years,” said Speaker Vos. “Times have changed, state demographics have changed, and of course, schools have changed; it’s time to examine the way we pay for schools.”

“Every child should have access to a quality education in Wisconsin,” said Sen. Fitzgerald. “With declining enrollments in more than half of the state’s school districts, a thorough analysis is necessary to ensure the process is transparent, equitable and delivers excellent schools today
and in the future.”

The Blue Ribbon Commission on School Funding involves members of the legislature and experts in the field of education. The commission will hold its first meeting this month. Beginning next year, the commission will travel around the state conducting public hearings to learn more about school funding issues in Wisconsin. Recommendations will be given to legislative leaders before the end of the session.

Wisconsin’s State-Local Tax Burden Edges Down in 2017

Wisconsin’s overall state-local tax burden again declined last year, though the drop was due mainly to two specific events, according to the Wisconsin Taxpayers Alliance (WISTAX). In a new report—“A Glass Half-Empty or Half-Full?”—WISTAX cites as primary reasons for the drop a 19% decline in unemployment insurance taxes due to a strengthening economy, and the elimination of the 0.5% Brown County sales tax that paid for renovations of Lambeau Field.

The combined state-local tax burden for 2017 was 10.7% of personal income, down 0.1 percentage points from 10.8% in 2016. State-local taxes relative to personal income have declined six consecutive years since reaching 11.9% of income in 2011.

State tax collections totaled $18.8 billion in 2017, a 1.7% increase over 2016. With state personal income increasing at a similar rate (1.9%), the state tax claim remained unchanged at 7.0% of income. The largest one-year change in state taxes during 2017 was an 18.6% decline in unemployment tax collections, from $922.6 million in 2016 to $751.3 million in 2017. This was the fifth consecutive decline and one to be expected in an expanding economy with little unemployment.

The largest state tax—the individual income tax—increased 3.9% last year, from $7.7 billion to $8.0 billion. Unlike those that fund unemployment compensation, income taxes increase during economic expansion and generally decline during contractions. State sales tax collections increased 3.1% in 2017, from $5.1 billion to $5.2 billion. Over the past five years, sales taxes increased 21.8%, more than any other major state tax.

While corporate income taxes typically rise with the economy, state collections have fallen over the past two years. They dropped 4.4%, from $963.0 million in 2016 to $920.9 million in 2017. The decline was partly due to the multi-year phase-in of an agricultural and manufacturing tax credit which, when fully implemented, would nearly eliminate corporate income taxes for manufacturers and farmers.

The state’s two main transportation revenues—the gas tax and vehicle registration fees—continued sluggish growth. Gas tax collections rose 0.7%, to $1.04 billion in 2017. Vehicle registration fees inched up 0.1% to $692.3 million.

Local tax collections totaled $10.2 billion in 2017, a 1.8% increase over 2016. The property tax is the main local funding source for local governments. Net collections (after accounting for state credits) increased 2.7% in 2017, from $9.5 billion to $9.6 billion. Since 2011, the state has essentially frozen municipal and county tax levies, except for increases tied to new construction and borrowing. It has restricted school revenue growth since 1994, initially allowing inflationary increases. That ended in 2010, and since 2012, increases have been small to none.

13 States Launch New Legal Challenge to California Egg Law

More than a dozen states banded together Monday to ask the U.S. Supreme Court to block a California law requiring any eggs sold there to come from hens that have space to stretch out in their cages.

In a lawsuit filed directly to the high court, the states allege that California’s law has cost consumers nationwide up to $350 million annually because of higher egg prices since it took effect in 2015. The lawsuit argues that California’s requirements violate the U.S. Constitution’s interstate commerce clause and are pre-empted by federal law.

Missouri Attorney General Josh Hawley is leading the lawsuit. Other plaintiff states are Alabama, Arkansas, Indiana, Iowa, Louisiana, Nebraska, Nevada, North Dakota, Oklahoma, Texas, Utah and Wisconsin.

The California attorney general’s office said Monday that it was reviewing the lawsuit.

California produced about 5 billion eggs and imported an additional 4 billion from other states in 2012, according to the lawsuit. Thirty percent of those out-of-state eggs came from Iowa, the nation’s top egg producer. About 13 percent of California’s egg imports came from Missouri, the second highest percentage cited in the lawsuit.

The number of eggs produced in California dropped to 3.5 billion last year despite rising nationally, according to the U.S. Department of Agriculture. Missouri’s egg production was up 60 percent since 2012 to 3.2 billion last year.

Hawley asserted in a statement that California’s egg law is “a clear attempt by big-government proponents to impose job-killing regulations” on other states.

 

Reconciling House and Senate Tax Bills

Republicans will try Monday to urgently reconcile the tax overhaul bills they passed in the House and Senate, entering a delicate period where they have to retain the support of their party’s conservative and moderate members. Discussions are expected to continue throughout the week and could conclude as early as next week with the drafting of a so-called “conference report” that constitutes the final legislation. That bill must pass each chamber before Trump can sign it into law.

The most delicate discussions will probably take place over how to tax so-called “pass-through” businesses. There are millions of these firms in the United States, and they can range from small businesses to large real estate companies and professional sports franchises. They are often owned by a single entity or partnership, and their income is passed through to the owners, who pay taxes on that money through the individual income tax code.

The two bills take markedly different approaches to the taxation of pass-through business income, with the House bill providing a much larger tax cut.

There are several other issues that need to be resolved.

The Senate bills begins lowering the corporate tax rate in 2019, and the House bill begins lowering it in 2018. The House and Senate bills take different approaches to the individual tax brackets: The House bill has only four brackets, and the top rate remains unchanged at 39.6 percent; the Senate bill keeps seven brackets but lowers the top rate to 38.5.

The House bill creates a five-year “family flexibility credit” that aims to help families lower their taxes. The Senate bill doesn’t have such a measure.

The House bill entirely eliminates the estate tax — a tax paid on inheritances that is limited near exclusively to the very wealthy — beginning in 2024, while the Senate bill scales it back dramatically without getting rid of it entirely.

The Senate moved to resolve one potential sticking point between the two chambers — moving to scale back, rather than eliminate entirely, the deduction for state and local taxes. The Senate bill adopts a House compromise that would allow individuals to deduct up to $10,000 in property taxes only.

The Senate bill allows almost all of the tax cuts for individuals and families to expire after 2025 — a step that was taken to make sure the bill didn’t add to the deficit beyond the levels permitted under complex Senate rules. White House budget director Mick Mulvaney insisted again Sunday that those cuts wouldn’t really expire because a future Congress would extend them.

Reform Bill Would Lower Debilitating Litigation Costs for Wisconsin Businesses and Government

Business groups across Wisconsin and the nation applaud the efforts of Reps. Born and Nygren and Sens. Tiffany and Craig that build on Wisconsin’s past tort reform successes. Among other reforms, their legislation addresses the most pressing civil litigation challenge – escalating transactional costs relating to discovery.

The heart of this litigation reform initiative is aligning Wisconsin’s civil procedures for discovery and class actions to the corresponding federal rules. The modernization of these court procedures, mostly aimed at costly discovery practices, will reduce litigation costs for small and large businesses, as well as state and local governments who must spend taxpayers’ dollars responding to abusive discovery practices.

Uniformity between the state and federal rules makes it easier for both plaintiffs and defendants. It enhances predictability and provides judges with a larger body of case law upon which to draw. This is particularly helpful to Wisconsin Circuit Court judges.

These common-sense discovery reforms will do the following:

• Make it clear that both courts and parties have an obligation to pursue the just, speedy, and inexpensive resolution of each case.

• Establish cost-benefit and proportionality requirements for discovery to prevent litigants from abusing the discovery process to leverage a
higher potential settlement or engage in a “fishing expedition.”

• Put on hold discovery and other proceedings pending the court’s decision on a motion to dismiss or other dispositive motions, protecting parties from costly discovery in cases that may be dismissed or where refinement of the pleadings may clarify the allegations and scope of relevant discovery.

• Provide notice of third-party litigation financing, if the financier has a right to receive compensation that is contingent on and sourced from
the outcome of the action. Such third party finance can increase the cost of litigation and cause suits to be brought that would not
otherwise have been financially justified.

• Limit discovery of electronically stored information (ESI) to address the escalating volume of ESI that is now one of the most significant
discovery-related costs.

• Unless otherwise stipulated or ordered by the court, limit discovery to 25 interrogatories, 10 depositions, none of which may exceed 7 hours
in duration, and a look-back period of not more than 5 years prior to the accrual of the cause of action.