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Westlake Legal Group > Federal Taxes (US)

How Tech Taxes Became the World’s Hottest Economic Debate

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WASHINGTON — A growing movement by foreign governments to tax American tech giants that supply internet search, online shopping and social media to their citizens has quickly emerged as the largest global economic battle of 2020.

The fight pits traditional allies against each other, with European countries like France, Italy and Britain clashing with the United States over their plans to impose new taxes on digital services provided by companies like Amazon and Google.

At the core of the debate are fundamental questions about where economic activity in the digital age is generated, where it should be taxed and who should collect that revenue. The potential for large tax dollars has spurred governments across the world to consider new digital taxes and has even inspired lawmakers in some American states, like Maryland and New York, to propose their own levies on digital trade.

This week, national leaders meeting in Davos, Switzerland, brokered a truce between the United States and France, which had planned to move ahead with a digital services tax. Officials in both countries said they would pause what had been an escalating dispute in order to give international negotiators a chance to reach a global tax agreement that could halt a proliferation of digital taxes.

But the meetings, which took place at the World Economic Forum, have also brought new threats of taxation and tariff retaliation and underscored how fragile negotiations remain.

The stakes are high for governments and multinational corporations — even those outside the tech sector. The digital tax negotiations, which are being conducted through the Organization for Economic Cooperation and Development, have become entwined with efforts to reduce attempts by companies to avoid taxes by shifting profits overseas.

Late last year, negotiators at the O.E.C.D., including a delegation from the Trump administration, agreed to a first-step framework that would allow countries to tax certain digital-service providers even if they did not have physical presences inside their borders.

But Treasury Secretary Steven Mnuchin quickly surprised O.E.C.D. officials with a letter requesting a change to the framework, one that would effectively allow some American companies to opt out of those taxes. O.E.C.D. officials pushed back, and negotiators are set to meet again next week in Paris.

The discussions, which are expected to last months, could end with an agreement on a global minimum tax that all multinational companies must pay on their profits, regardless of where the profits are booked. The negotiations could also set a worldwide standard for how much tax companies must remit to certain countries based on their digital activity.

Mr. Mnuchin expressed frustration on Thursday in Davos that a digital sales tax had become such a focus of discussion at the World Economic Forum. Setting a minimum tax for companies around the world, to prevent them from hiding profits in tax havens, will make a much bigger difference, he said.

“From my perspective, that is by far the more important,” he said.

There is a chance the talks could devolve into a “Wild West” array of separate tax regimes on digital activity around the world.

“It’s a big old mess,” said Jennifer McCloskey, vice president for policy at the Information Technology Industry Council, a trade group that represents companies including Apple, Oracle and several other American tech leaders. “But,” she added, “that’s to be expected.”

Companies that operate across borders have long paid taxes where their profits are booked. Calculating that sounds simple enough, but it has grown increasingly complicated in recent decades. To reduce their tax bills, corporations have shifted profits — and in some cases their headquarters — on paper to low-tax countries like Bermuda and Ireland. O.E.C.D. countries like the United States have agreed to measures meant to discourage such shifting.

Such efforts did not resolve some countries’ complaints about Facebook, eBay and other companies that offer online services to their residents but have little or no physical presence within their borders. Those governments, along with leaders of the European Union, say large tech companies are avoiding paying their fair share of taxes.

“They’re looking for new ways to raise revenue,” said Nicole Kaeding, an economist and the vice president of policy promotion at the National Taxpayers Union Foundation, which opposes the digital tax push by countries and states. “These are all wrapped up in the questions of how do we adjust a tax system that is a hundred years old in order to tax the digital economy?”

Kimberly Clausing, an economist at Reed College in Portland, Ore., who specializes in international taxation and has pushed for additional measures to tax corporate profits around the world, said the digital tax effort exposed political and economic tensions in wealthy nations.

“It really lays bare this fiction that economic value is something we can assign to a location,” Ms. Clausing said. “As more and more of the value is intangible, it really creates this opportunity for profit-shifting.”

The proliferation of profitable digital services makes it “really the time” for the international community to revisit the rules of corporate taxation across borders, she said.

The feud between French and American officials has sped up the O.E.C.D. process to rewrite those rules, which has a deadline for completion at the end of this year.

France announced plans last year to impose a 3 percent tax starting Jan. 1 on the revenues that companies earn from providing digital services to French users. The government estimated a windfall of 500 million euros (about $563 million). Similar taxes are under consideration in Britain, Italy, Canada and a host of other wealthy nations.

Those moves have drawn criticism, and tariff threats, from the Trump administration. President Trump has insisted that only the United States may tax American-based companies — even though American multinationals already pay taxes in other countries where they have factories or other physical operations. The president threatened to retaliate against France with American tariffs of up to 100 percent on French wine, cheese, handbags and other goods.

This week, Mr. Mnuchin also threatened tariffs against Italy and Britain if they impose similar taxes.

Despite the acrimony, there are signs of progress. France’s finance minister, Bruno Le Maire, said Wednesday that the United States and France had found a path forward in the O.E.C.D. negotiations to set digital taxes.

The French agreed to suspend collections of their new digital tax, and the United States agreed to hold off on tariffs, giving negotiators at the O.E.C.D. time to strike their deal.

Mr. Le Maire made clear that the digital tax issue was far from resolved, and talks were expected to continue on Thursday.

“We need to address fiscal evasion,” he said. “We have to address the fact that the biggest companies in the world are making huge profits in Europe and everywhere in the world without paying the due level of taxation because they do not have any physical presence — we have to address that question.”

Some observers are skeptical that the process can produce consensus — from some 130 countries — by year’s end.

“Some countries are going to have to give up taxing rights in order to allow other countries to have them. And the question is: Who?” said J. Clark Armitage, a former Internal Revenue Service official and the president of the tax firm Caplin & Drysdale in Washington. “It’s going to be hard to pass something that tracks what they propose.”

Negotiators face intense and competing pressures from large multinational companies. American tech firms are eager for a deal that would prevent multiple countries from imposing a wide variety of taxes on their activities.

“The worst case would be triple, quadruple taxation, because of how the individual taxes are not aligned,” said Jordan Haas, trade director for the Internet Association, another tech trade group in Washington.

Other companies, like the consumer products giant Johnson & Johnson, have urged negotiators to go slow in considering the global minimum tax proposal that the O.E.C.D. is discussing — and that French officials say must be included in any final agreement.

European Union officials are already looking at reviving their own proposal to significantly revamp how the companies are taxed in the 28-nation bloc in the event that the O.E.C.D. discussions fail. On Wednesday, a European Union official said leaders were waiting to see whether Trump administration negotiators engaged more aggressively in the discussions and showed a willingness to work with Congress to carry out any consensus solution that emerged from the talks.

“We’re pleased” with the progress announced in Davos, the official said. “At the same time, we’re skeptical.”

Keith Bradsher contributed reporting from Davos, Switzerland.

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Trump Tax Break That Benefited the Rich Is Being Investigated

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A federal tax break meant to help poor communities that became a windfall for wealthy investors is being investigated by the Treasury Department, the agency’s deputy inspector general said on Wednesday.

The inquiry is being conducted at the request of three Democratic lawmakers, Senator Cory Booker of New Jersey, Representative Emanuel Cleaver II of Missouri and Representative Ron Kind of Wisconsin.

The lawmakers made their request after articles in The New York Times and ProPublica raised questions about the Opportunity Zone tax break.

The legislation, part of the 2017 tax overhaul, is supposed to encourage new investment in poor neighborhoods, leading to new housing, businesses and jobs. However, wealthy investors are piling into the initiative, including developers with ties to the Trump administration.

Last year, The Times reported how money eligible for the tax break — supported by both Democrats and Republicans — was going to luxury projects in affluent neighborhoods, including deals that were underway long before the tax break took effect.

In October, The Times described how the financier Michael Milken stood to benefit from a move the Treasury Department made over the objections of some agency officials to permit a census tract in Nevada to qualify for the Opportunity Zone tax break. Mr. Milken is a longtime friend of Treasury Secretary Steven Mnuchin’s.

“Despite these warnings from staff, Secretary Mnuchin instructed Treasury officials to allow the otherwise ineligible tract to qualify for the incentive,” the lawmakers wrote in seeking the inquiry. “If the Treasury Department provided a stamp of approval as a political favor, it is not only unacceptable, but in complete violation of the congressional intent of the Opportunity Zones.”

The Treasury’s internal watchdog expects “to complete our work and respond to the congressional requesters in early spring,” Rich Delmar, the department’s deputy inspector general, said in a statement.

Other potential beneficiaries of the Opportunity Zone tax break, The Times reported last year, were billionaire financiers like Leon Cooperman; Chris Christie, the former New Jersey governor; Richard LeFrak, a New York real estate titan who is close to the president; and the family of Jared Kushner, Mr. Trump’s son-in-law and senior adviser.

The initiative allows people to sell stocks or other investments and delay capital gains taxes for years — as long as they put the proceeds into projects in federally certified opportunity zones. Investors can avoid federal taxes on any profits from those projects.

In late December, the administration finished the program’s regulations. Officials said the regulations gave investors more clarity and flexibility on how to deploy their money, and push more funds into designated areas.

NBC News earlier reported the news of the inquiry.

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The Economy Is Expanding. Why Are Economists So Glum?

Westlake Legal Group 08DC-ECON-02-facebookJumbo The Economy Is Expanding. Why Are Economists So Glum? Wages and Salaries United States Economy Unemployment Taxation Recession and Depression Productivity National Debt (US) International Trade and World Market Interest Rates Inflation (Economics) Immigration and Emigration Federal Taxes (US) Federal Budget (US) Economic Conditions and Trends Banking and Financial Institutions

SAN DIEGO — The mood among economic forecasters gathered for their annual meeting last weekend was dark. They warned one another about President Trump’s trade war, about government budget deficits and, repeatedly, about the inability of central banks to fully combat another recession should one sweep the globe anytime soon.

Among the thousands of economists gathered for the profession’s annual meeting, there was little celebration of Mr. Trump’s economic policies, even though unemployment is at a 50-year low, wages are rising and the economy is experiencing its longest expansion on record.

Underlying their sense of foreboding was a widespread sentiment that the current expansion is built on a potentially shaky combination of high deficits and low interest rates — and when it ends, as it is bound to do eventually, it could do so painfully.

Those concerns were echoed on Wednesday by economists at the World Bank, who called the worldwide expansion “fragile” in their latest “Global Economic Prospects” report. The report forecasts a slight uptick in growth in 2020 after a sluggish year bogged down by trade tensions and weak investment. But it said “downside risks predominate,” including the potential escalation of trade fights, sharp slowdowns in the United States and other wealthy countries and financial disruptions in emerging markets like China and India.

“The materialization of these risks would test the ability of policymakers to respond effectively to negative events,” the report by the bank, which is led by David Malpass, a former Trump administration official, stated.

The bank’s warnings echoed the fears expressed by many economists in San Diego, both in small research-paper presentations and in ballroom discussions of the clouds on the global economic horizon.

Trade tensions between the United States and China have cooled at least temporarily, but they are escalating across the Atlantic as European nations begin to impose new taxes on technology companies that are largely based in the United States. Mr. Trump has already threatened tariffs on French goods in retaliation for a tech tax, and many analysts worry that separate trade talks between the United States and the European Union could end in a tariff war. Manufacturing is mired in a global slowdown, with the sector contracting in the United States.

At a packed room in San Diego last week, researchers presented estimates that tariffs imposed by the United States and China — which remain in place despite the recent truce in trade talks — have reduced wages for workers in both countries already.

The American economy appears to have grown by a little more than 2 percent in 2019, though the statistics are not yet fully compiled. That is likely to be the slowest rate of Mr. Trump’s presidency, and well below the growth he promised that his economic and regulatory policies would produce.

The World Bank estimates growth in the United States will slow to 1.8 percent this year and 1.7 percent next year. That would be nearly the lowest annual rate since the last recession ended in mid-2009. The bank said the forecast reflected fading stimulus from Mr. Trump’s signature 2017 tax cuts and from government spending increases he has signed into law.

The cuts, and to a lesser degree the additional spending, have helped push the federal budget deficit to nearly $1 trillion a year, even as unemployment lingers near a half-century low. Fiscal deficits remain high in several other wealthy nations, particularly given how far into an economic expansion those countries are.

Interest rates have been dropping across advanced economies, thanks to long-running trends like population aging. That leaves central banks — which usually stoke growth by making borrowing cheaper — with far less conventional power in a recession.

Economists have been “going through the stages of grief” as they accept that such low rates are likely to prevail, John C. Williams, who leads the Federal Reserve Bank of New York, said at the weekend’s gathering.

After the 2007-09 recession, economists speculated that the conditions that plagued developed nations — low growth, low inflation and low interest rates — would be short-lived. Scars were still healing after the worst downturn since the Great Depression, they thought.

That view has slowly been replaced by a more pessimistic one, as the field acknowledged that economic gains were likely to remain muted across advanced countries. In 2019, the Fed had to step back from plans to raise rates further and cut borrowing costs instead, leaving its policy rate at less than half of its 2007 level and underlining just how diminished the new normal looks.

“It’s clear that more was, and still is, going on,” Janet L. Yellen, the former Federal Reserve chair said at the event. “Although monetary policy has a meaningful role to play in addressing future downturns, it is unlikely to be sufficient in years ahead for several reasons.”

Ms. Yellen emphasized that government spending would need to play a larger role in combating future downturns, calling for stronger automatic stabilizers, which increase government spending when the economy weakens and tax receipts fall. There is no imminent sign that Congress is ready to enact such policies, but hope for government action was a constant refrain in San Diego.

Sluggish growth in worker productivity has held back the economy, said Valerie A. Ramey, an economist at the University of California, San Diego. She called on lawmakers to increase spending on infrastructure and research and development in order to spur a productivity acceleration.

Ms. Yellen, who assumed the presidency of the American Economic Association at the meeting, oversaw its program of panels and presentations, assembling a lineup that included several papers assessing damage from tariffs and the trade war. She said she and her colleagues rejected four proposals for every five that were submitted, choosing some that showed the benefits to advanced economies of attracting immigrants, particularly highly skilled ones, in stark contrast to Mr. Trump’s hard line on immigration to the United States.

Few of the papers presented assessed Mr. Trump’s tax law, and none of them argued, as Mr. Trump’s advisers did at similar conferences in recent years, that the tax cuts were supercharging investment.

In an interview on Saturday morning, over a buffet breakfast in a hotel restaurant with a view of the swimming pool, Ms. Yellen said that she had a reason for picking the sessions she did, calling low interest rates the macroeconomic “issue of our times.” She said she shared other economists’ concerns about trade and economic policy in the current environment.

“You do see a number of sessions in the program about this,” Ms. Yellen said. “I organized the program, and I think it’s not an accident you’re seeing it. I think it’s very important.”

Ben S. Bernanke, who was Fed chair during the 2007-09 recession, told the conference that a juiced-up monetary policy arsenal should be enough to combat the next downturn.

But “on one point we can be certain: The old methods won’t do,” he said. The Fed will need to use bond-buying and other tricks to supplement rate cuts.

And even economists’ most hopeful takes had a gray lining. Mr. Bernanke’s relative optimism hinged on the idea that interest rates would not continue to fall. Ms. Yellen’s hope for the future turned on greater activism from politicians to fight recessions.

If those things do not happen? The United States could look more like Japan, where inflation has slipped much lower, rates are rock bottom and the budget deficit much larger.

In good times, said Adam S. Posen, president of the Peterson Institute for International Economics, that may not be the worst outcome. In a recession, though, the nation’s example may offer bad news. In the years since the financial crisis, Japan has rolled out an extremely active economic policy — both monetary and fiscal — to move its inflation rate back up, and it has succeeded only in averting outright price declines.

“It is wise to be cautious, and not assume that they will be as effective as we think,” Mr. Posen said of monetary policies. “We need to think about different ways of doing fiscal-monetary coordination.”

And while some economists, such as Harvard’s Lawrence H. Summers, extolled high fiscal deficits as a necessary weapon against slowdown or recession, others, such as Harvard’s N. Gregory Mankiw and Kenneth Rogoff and Stanford’s Michael J. Boskin, presented research warning that high levels of government debt could crimp growth.

Those papers echoed warnings that those economists issued earlier in the expansion that did not come to pass. But they argued that the large amounts of federal debt that has accumulated in the meantime posed a threat. In other words, the economists warned, it is only a matter of time.

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Why the Impact of the Trump Taxes Remains Partly Hidden

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Armed with legions of lobbyists, companies have been pushing hard — and successfully — to weaken new federal taxes that take aim at overseas tax havens.

Many of them have managed to avoid publicly disclosing how much they owe under the new taxes. Without such figures, it becomes virtually impossible for outsiders to work out how much companies are saving from the watered down tax rules.

In theory, this opacity should not exist. United States securities regulations have long required public companies to disclose even relatively minor tax expenses. Over the past year, this requirement has led to a small number of companies revealing the effect of the new taxes on overseas income.

Yet many others — including some longtime users of tax havens — appear to have found ways around disclosing how the overseas taxes will affect them.

President Trump’s 2017 tax law did not just cut taxes for companies. It also introduced new provisions aimed at discouraging the practice of routing income through countries with ultralow taxes.

One of those was a tax on “global intangible low-taxed income,” known as GILTI, which acts as a minimum tax on certain profits that companies earn abroad. GILTI was expected to hit corporations that appeared to be paying almost no tax on their overseas income.

In 2016, for example, Facebook’s foreign taxes were only 3 percent of its foreign profits. By taxing income that flows through offshore havens, the GILTI initiative was supposed to bring in tens of billions of dollars for the United States Treasury and to partially offset the revenue lost from the 2017 law’s deep tax cuts.

United States securities laws require publicly traded companies to provide detailed explanations of their taxes in their annual reports. Specifically, companies must reveal any individual tax expenses (or benefits) that exceed 5 percent of what is known as their statutory income tax expense.

Say a company had $100 in income. At today’s 21 percent corporate federal income tax rate, its federal income tax expense would be $21. Under the disclosure rule, that company would have to divulge any particular tax expenses that exceeded $1.05 (5 percent of $21).

For companies that were big users of tax havens before the passage of the 2017 law, the GILTI tax was expected to be a significant new expense — and one that would presumably have to be individually disclosed. A small number of companies, including Netflix and Bristol Myers, the pharmaceutical giant, did so in their 2018 annual reports.

But many of the companies that were most likely to face a large bill from the new tax — like Apple, Google, Microsoft and Facebook — have not disclosed how much the GILTI tax took out of their earnings.

The lack of disclosure may be masking the financial impact of how the Trump administration is writing rules governing how the 2017 tax package is enacted. Under pressure from corporate lobbyists, the Treasury Department has allowed multinational companies to partly or completely avoid taxes on certain overseas income.

Tax experts told The New York Times that the impact of those weakened rules, while hard to measure precisely, is likely to exceed $100 billion.

The companies’ silence about what they actually are paying under the GILTI makes it hard to quantify the true costs of the Treasury’s rules.

It’s possible that some companies did not reveal how much the GILTI tax was costing them because, after accounting for tax credits and other factors, the amount fell below the 5 percent threshold. Microsoft said that was the case with its GILTI tax in its 2019 fiscal year.

But other companies appear to have bundled GILTI together with other tax expenses and benefits in a way that makes the cost invisible. Facebook, for example, quantifies “the effect of non-U. S. operations” on its overall tax liability. And Apple provides a number for its taxes on “earnings of foreign subsidiaries.”

The cost of the GILTI tax is most likely lumped into those categories, tax experts said. Over the years, they say, corporate auditors — who have to review and sign off on companies’ financial disclosures — have adopted a loose reading of the tax-disclosure rule, enabling companies to combine items that are not directly related.

Facebook did not respond to a request for comment. Google declined to comment. Apple said in an emailed statement, “Since 2008, Apple’s corporate taxes have totaled over $100 billion. We pay all that we owe according to tax laws wherever we operate.”

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How Big Companies Won New Tax Breaks From the Trump Administration

The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.

The biggest change to the tax code in three decades, the law slashed taxes for big companies, part of an effort to coax them to invest more in the United States and to discourage them from stashing profits in overseas tax havens.

Corporate executives, major investors and the wealthiest Americans hailed the tax cuts as a once-in-a-generation boon not only to their own fortunes but also to the United States economy.

But big companies wanted more — and, not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders. The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.

One consequence is that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50 percent since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law.

Laws like the 2017 tax cuts are carried out by federal agencies that first must formalize them via rules and regulations. The process of writing the rules, conducted largely out of public view, can determine who wins and who loses.

Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process.

The lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States.

The blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.

Thanks in part to the chaotic manner in which the bill was rushed through Congress — a situation that gave the Treasury Department extra latitude to interpret a law that was, by all accounts, sloppily written — the corporate lobbying campaign was a resounding success.

ImageWestlake Legal Group merlin_130895553_4ce98faa-e477-440f-b670-73e9bce61508-articleLarge How Big Companies Won New Tax Breaks From the Trump Administration United States Politics and Government Trump, Donald J Treasury Department Taxation Tax Shelters Tax Cuts and Jobs Act (2017) Tax Credits, Deductions and Exemptions Procter&Gamble Co Mnuchin, Steven T Internal Revenue Service Income Tax General Electric Company Federal Taxes (US) Credit Suisse Group AG Corporate Taxes Anheuser-Busch InBev NV

A section of the Senate bill. Congress gave final approval to the Tax Cuts and Jobs Act on Dec. 20, 2017.Credit…Jon Elswick/Associated Press

Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.

“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world.”

It is the latest example of the benefits of the Republican tax package flowing disproportionately to the richest of the rich. Even a tax break that was supposed to aid poor communities — an initiative called “opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.

Of course, companies didn’t get everything they wanted, and Brian Morgenstern, a Treasury spokesman, defended the department’s handling of the tax rules. “No particular taxpayer or group had any undue influence at any time in the process,” he said.

Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.

In the late 1990s, American companies accelerated their efforts to claim that trillions of dollars of profits they earned in high-tax places like the United States, Japan or Germany were actually earned in low- or no-tax places like Luxembourg, Bermuda or Ireland.

Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques that let the companies pay taxes at far less than the 35 percent corporate tax rate in the United States that existed before the 2017 changes. Their playful nicknames — like Double Irish and Dutch Sandwich — made them sound benign.

The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.

When President Trump and congressional Republicans assembled an enormous tax-cut package in 2017, they pitched it in part as a grand bargain: Companies would get the deep tax cuts that they had spent years clamoring for, but the law would also represent a long-overdue effort to fight corporate tax avoidance and the shipment of jobs overseas.

“The situation where companies are actually encouraged to move overseas and keep their profits overseas makes no sense,” Senator Rob Portman, an Ohio Republican, said on the Senate floor in November 2017.

Republicans were racing to secure a legislative victory during Mr. Trump’s first year in office — a period marked by the administration’s failure to repeal Obamacare and an embarrassing procession of political blunders. Sweeping tax cuts could give Republicans a jolt of much-needed momentum heading into the 2018 midterm elections.

To speed things along, Republicans used a congressional process known as “budget reconciliation,” which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority. But to qualify for that parliamentary green light, the net cost of the bill — after accounting for different tax cuts and tax increases — had to be less than $1.5 trillion over 10 years.

The bill’s cuts totaled $5.5 trillion. The corporate income tax rate shrank to 21 percent from 35 percent, and companies also won a tax break on the trillions in profits brought home from offshore.

To close the gap between the $5.5 trillion in cuts and the maximum price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

Two of the biggest new taxes were supposed to apply to multinational corporations, and lawmakers bestowed them with easy-to-pronounce acronyms — BEAT and GILTI — that belie their complexity.

BEAT stands for the base erosion and anti-abuse tax. It was aimed largely at foreign companies with major operations in the United States, some of which had for years minimized their United States tax bills by shifting money between American subsidiaries and their foreign parent companies.

Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.

The BEAT aimed to make that less lucrative. Some payments that companies sent to their foreign affiliates would face a new 10 percent tax.

The other big measure was called GILTI: global intangible low-taxed income.

To reduce the benefit companies reaped by claiming that their profits were earned in tax havens, the law imposed an additional tax of up to 10.5 percent on some offshore earnings.

The Joint Committee on Taxation, the congressional panel that estimates the impacts of tax changes, predicted that the BEAT and GILTI would bring in $262 billion over a decade — roughly enough to fund the Treasury Department, the Environmental Protection Agency and the National Cancer Institute for 10 years.

Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.

From the start, the new taxes were pocked with loopholes.

In the BEAT, for example, Senate Republicans hoped to avoid a revolt by large companies. They wrote the law so that any payments an American company made to a foreign affiliate for something that went into a product — as opposed to, say, interest payments on loans — were excluded from the tax.

Let’s say an American pharmaceutical company sells pills in the United States. The pills are manufactured by a subsidiary in Ireland, and the American parent pays the Irish unit for the pills before they are sold to the public. Those payments mean that the company’s profits in the United States, where taxes are relatively high, go down; profits in tax-friendly Ireland go up.

Because such payments to Ireland wouldn’t be taxed, some companies that had been the most aggressive at shifting profits into offshore havens were spared the full brunt of the BEAT.

Other companies, like General Electric, were surprised to be hit by the new tax, thinking it applied only to foreign multinationals, according to Pat Brown, who had been G.E.’s top tax expert.

Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast this year that the Trump administration should bridge the gap between expectations about the tax law and how it was playing out in reality. He lobbied the Treasury on behalf of G.E.

“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”

Almost immediately after Mr. Trump signed the bill, companies and their lobbyists — including G.E.’s Mr. Brown — began a full-court pressure campaign to try to shield themselves from the BEAT and GILTI.

The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.

Chip Harter was the Treasury official in charge of writing the rules for the BEAT and GILTI. He had spent decades at PwC and the law firm Baker McKenzie, counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.

Starting in January 2018, he and his colleagues found themselves in nonstop meetings — roughly 10 a week at times — with lobbyists for companies and industry groups.

The Organization for International Investment — a powerful trade group for foreign multinationals like the Swiss food company Nestlé and the Dutch chemical maker LyondellBasell — objected to a Treasury proposal that would have prevented companies from using a complex currency-accounting maneuver to avoid the BEAT.

The group’s lobbyists were from PwC and Baker McKenzie, Mr. Harter’s former firms, according to public lobbying disclosures. One of them, Pam Olson, was the top Treasury tax official in the George W. Bush administration. (Mr. Morgenstern, the Treasury spokesman, said Mr. Harter didn’t meet with PwC while the rules were being written.)

This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.

One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.

American regulators require international banks to ensure that their United States divisions are financially equipped to absorb big losses in a crisis. To meet those requirements, foreign banks lend the money to their American outposts. Those loans accrue interest. Under the BEAT, the interest that the American units paid to their European parents would often be taxed.

“Foreign banks should not be penalized by the U.S. tax laws for complying” with regulations, said Briget Polichene, chief executive of the Institute of International Bankers, whose members include many of the world’s largest banks.

Banks flooded the Treasury Department with lobbyists and letters.

Late last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and told him about the plan to give the banks a break. Mr. Mnuchin — a longtime banking executive before joining the Trump administration — signed off on the new exemptions, according to a person familiar with the matter.

A few months later, the tax-policy office handed another victory to the foreign banks, ruling that an even wider range of bank payments would be exempted.

Among the lobbyists who successfully pushed the banks’ case in private meetings with senior Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb. Her client was the Institute of International Bankers.

In September 2019, Ms. Nijenhuis took off her lobbying hat and joined the Treasury’s Office of Tax Policy, which was still writing the rules governing the tax law.

Some tax experts said that the Treasury had no legal authority to exempt the bank payments from the BEAT; only Congress had that power. The Trump administration created the exception “out of whole cloth,” said Mr. Wells, the University of Houston professor.

Even inside the Treasury, the ruling was controversial. Some officials told Mr. Harter — the senior official in charge of the international rules — that the department lacked the power, according to people familiar with the discussions. Mr. Harter dismissed the objections.

Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce by up to $50 billion the revenue raised by the BEAT.

Over all, the BEAT is likely to collect “a small fraction” of the $150 billion of new tax revenue that was originally projected by Congress, said Thomas Horst, who advises companies on their overseas tax arrangements. He came to that conclusion after reviewing the tax disclosures in more than 140 annual reports filed by multinationals.

Mr. Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed these issues internally and are fully comfortable that we have the legal authority for the conclusions reached in these regulations.” He said Ms. Nijenhuis was not involved in crafting the BEAT rules.

He also said the Treasury decided that changing the rules for foreign banks was appropriate.

“We were responsive to job creators,” he said.

The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.

Back in 2017, Republicans said the GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.

In the pharmaceutical and tech industries in particular, profits are often tied to patents. Companies had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units. The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.

But after the law was enacted, large multinationals in industries like consumer products discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate’s falling to 21 percent from 35 percent.

Lobbyists for Procter & Gamble and other companies turned to lawmakers for help. They asked members of the Senate Finance Committee to tell Treasury officials that they hadn’t intended the GILTI to affect their industries. It was a simple but powerful strategy: Because the Treasury was required to consider congressional intent when writing the tax rules, such explanations could sway the outcome.

Several senators then met with Mr. Mnuchin to discuss the rules.

One lobbyist, Michael Caballero, had been a senior Treasury official in the Obama administration. His clients included Credit Suisse and the industrial conglomerate United Technologies. He met repeatedly with Treasury and White House officials and pushed them to modify the rules so that big companies hit by the GILTI wouldn’t lose certain tax deductions.

In essence, the “high-tax exception” that Mr. Caballero was proposing would allow companies to deduct expenses that they incurred in their overseas operations from their American profits — lowering their United States tax bills.

Other companies jumped on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch, Comcast and P.&G. wrote letters or dispatched lobbyists to argue for the high-tax exception.

After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.

Two years after the tax cuts became law, their impact is becoming clear.

Companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profits remain out of reach of the United States government.

The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.

This month, the Organization for Economic Cooperation and Development calculated that the United States in 2018 experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had by far the largest budget deficit of any of those countries.

In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts. Big companies have spent this fall trying to win more.

In September, Chris D. Trunck, the vice president for tax at Owens Corning, the maker of insulation and roofing materials, wrote to the I.R.S. He pushed the Treasury to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.

The same month, the underwear manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin to broaden the high-tax exception so that more companies could take advantage of it.

Otherwise, Mr. Purvis warned, “the GILTI regime will become an impediment to U.S. companies and their ability to not only compete globally as a general matter, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business.”

The implied threat was clear: If the Treasury didn’t further chip away at the new tax, companies like Hanes, based in Winston-Salem, N.C., might have no choice but to move their headquarters overseas.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

How Big Companies Won New Tax Breaks From the Trump Administration

The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.

The biggest change to the tax code in three decades, the law slashed taxes for big companies, part of an effort to coax them to invest more in the United States and to discourage them from stashing profits in overseas tax havens.

Corporate executives, major investors and the wealthiest Americans hailed the tax cuts as a once-in-a-generation boon not only to their own fortunes but also to the United States economy.

But big companies wanted more — and, not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders. The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.

One consequence is that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50 percent since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law.

Laws like the 2017 tax cuts are carried out by federal agencies that first must formalize them via rules and regulations. The process of writing the rules, conducted largely out of public view, can determine who wins and who loses.

Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process.

The lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States.

The blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.

Thanks in part to the chaotic manner in which the bill was rushed through Congress — a situation that gave the Treasury Department extra latitude to interpret a law that was, by all accounts, sloppily written — the corporate lobbying campaign was a resounding success.

ImageWestlake Legal Group merlin_130895553_4ce98faa-e477-440f-b670-73e9bce61508-articleLarge How Big Companies Won New Tax Breaks From the Trump Administration United States Politics and Government Trump, Donald J Treasury Department Taxation Tax Shelters Tax Cuts and Jobs Act (2017) Tax Credits, Deductions and Exemptions Procter&Gamble Co Mnuchin, Steven T Internal Revenue Service Income Tax Hanesbrands Inc General Electric Company Federal Taxes (US) Credit Suisse Group AG Corporate Taxes Anheuser-Busch InBev NV

A section of the Senate bill. Congress gave final approval to the Tax Cuts and Jobs Act on Dec. 20, 2017.Credit…Jon Elswick/Associated Press

Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.

“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world.”

It is the latest example of the benefits of the Republican tax package flowing disproportionately to the richest of the rich. Even a tax break that was supposed to aid poor communities — an initiative called “opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.

Of course, companies didn’t get everything they wanted, and Brian Morgenstern, a Treasury spokesman, defended the department’s handling of the tax rules. “No particular taxpayer or group had any undue influence at any time in the process,” he said.

Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.

In the late 1990s, American companies accelerated their efforts to claim that trillions of dollars of profits they earned in high-tax places like the United States, Japan or Germany were actually earned in low- or no-tax places like Luxembourg, Bermuda or Ireland.

Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques that let the companies pay taxes at far less than the 35 percent corporate tax rate in the United States that existed before the 2017 changes. Their playful nicknames — like Double Irish and Dutch Sandwich — made them sound benign.

The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.

When President Trump and congressional Republicans assembled an enormous tax-cut package in 2017, they pitched it in part as a grand bargain: Companies would get the deep tax cuts that they had spent years clamoring for, but the law would also represent a long-overdue effort to fight corporate tax avoidance and the shipment of jobs overseas.

“The situation where companies are actually encouraged to move overseas and keep their profits overseas makes no sense,” Senator Rob Portman, an Ohio Republican, said on the Senate floor in November 2017.

Republicans were racing to secure a legislative victory during Mr. Trump’s first year in office — a period marked by the administration’s failure to repeal Obamacare and an embarrassing procession of political blunders. Sweeping tax cuts could give Republicans a jolt of much-needed momentum heading into the 2018 midterm elections.

To speed things along, Republicans used a congressional process known as “budget reconciliation,” which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority. But to qualify for that parliamentary green light, the net cost of the bill — after accounting for different tax cuts and tax increases — had to be less than $1.5 trillion over 10 years.

The bill’s cuts totaled $5.5 trillion. The corporate income tax rate shrank to 21 percent from 35 percent, and companies also won a tax break on the trillions in profits brought home from offshore.

To close the gap between the $5.5 trillion in cuts and the maximum price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

Two of the biggest new taxes were supposed to apply to multinational corporations, and lawmakers bestowed them with easy-to-pronounce acronyms — BEAT and GILTI — that belie their complexity.

BEAT stands for the base erosion and anti-abuse tax. It was aimed largely at foreign companies with major operations in the United States, some of which had for years minimized their United States tax bills by shifting money between American subsidiaries and their foreign parent companies.

Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.

The BEAT aimed to make that less lucrative. Some payments that companies sent to their foreign affiliates would face a new 10 percent tax.

The other big measure was called GILTI: global intangible low-taxed income.

To reduce the benefit companies reaped by claiming that their profits were earned in tax havens, the law imposed an additional tax of up to 10.5 percent on some offshore earnings.

The Joint Committee on Taxation, the congressional panel that estimates the impacts of tax changes, predicted that the BEAT and GILTI would bring in $262 billion over a decade — roughly enough to fund the Treasury Department, the Environmental Protection Agency and the National Cancer Institute for 10 years.

Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.

From the start, the new taxes were pocked with loopholes.

In the BEAT, for example, Senate Republicans hoped to avoid a revolt by large companies. They wrote the law so that any payments an American company made to a foreign affiliate for something that went into a product — as opposed to, say, interest payments on loans — were excluded from the tax.

Let’s say an American pharmaceutical company sells pills in the United States. The pills are manufactured by a subsidiary in Ireland, and the American parent pays the Irish unit for the pills before they are sold to the public. Those payments mean that the company’s profits in the United States, where taxes are relatively high, go down; profits in tax-friendly Ireland go up.

Because such payments to Ireland wouldn’t be taxed, some companies that had been the most aggressive at shifting profits into offshore havens were spared the full brunt of the BEAT.

Other companies, like General Electric, were surprised to be hit by the new tax, thinking it applied only to foreign multinationals, according to Pat Brown, who had been G.E.’s top tax expert.

Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast this year that the Trump administration should bridge the gap between expectations about the tax law and how it was playing out in reality. He lobbied the Treasury on behalf of G.E.

“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”

Almost immediately after Mr. Trump signed the bill, companies and their lobbyists — including G.E.’s Mr. Brown — began a full-court pressure campaign to try to shield themselves from the BEAT and GILTI.

The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.

Chip Harter was the Treasury official in charge of writing the rules for the BEAT and GILTI. He had spent decades at PwC and the law firm Baker McKenzie, counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.

Starting in January 2018, he and his colleagues found themselves in nonstop meetings — roughly 10 a week at times — with lobbyists for companies and industry groups.

The Organization for International Investment — a powerful trade group for foreign multinationals like the Swiss food company Nestlé and the Dutch chemical maker LyondellBasell — objected to a Treasury proposal that would have prevented companies from using a complex currency-accounting maneuver to avoid the BEAT.

The group’s lobbyists were from PwC and Baker McKenzie, Mr. Harter’s former firms, according to public lobbying disclosures. One of them, Pam Olson, was the top Treasury tax official in the George W. Bush administration. (Mr. Morgenstern, the Treasury spokesman, said Mr. Harter didn’t meet with PwC while the rules were being written.)

This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.

One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.

American regulators require international banks to ensure that their United States divisions are financially equipped to absorb big losses in a crisis. To meet those requirements, foreign banks lend the money to their American outposts. Those loans accrue interest. Under the BEAT, the interest that the American units paid to their European parents would often be taxed.

“Foreign banks should not be penalized by the U.S. tax laws for complying” with regulations, said Briget Polichene, chief executive of the Institute of International Bankers, whose members include many of the world’s largest banks.

Banks flooded the Treasury Department with lobbyists and letters.

Late last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and told him about the plan to give the banks a break. Mr. Mnuchin — a longtime banking executive before joining the Trump administration — signed off on the new exemptions, according to a person familiar with the matter.

A few months later, the tax-policy office handed another victory to the foreign banks, ruling that an even wider range of bank payments would be exempted.

Among the lobbyists who successfully pushed the banks’ case in private meetings with senior Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb. Her client was the Institute of International Bankers.

In September 2019, Ms. Nijenhuis took off her lobbying hat and joined the Treasury’s Office of Tax Policy, which was still writing the rules governing the tax law.

Some tax experts said that the Treasury had no legal authority to exempt the bank payments from the BEAT; only Congress had that power. The Trump administration created the exception “out of whole cloth,” said Mr. Wells, the University of Houston professor.

Even inside the Treasury, the ruling was controversial. Some officials told Mr. Harter — the senior official in charge of the international rules — that the department lacked the power, according to people familiar with the discussions. Mr. Harter dismissed the objections.

Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce by up to $50 billion the revenue raised by the BEAT.

Over all, the BEAT is likely to collect “a small fraction” of the $150 billion of new tax revenue that was originally projected by Congress, said Thomas Horst, who advises companies on their overseas tax arrangements. He came to that conclusion after reviewing the tax disclosures in more than 140 annual reports filed by multinationals.

Mr. Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed these issues internally and are fully comfortable that we have the legal authority for the conclusions reached in these regulations.” He said Ms. Nijenhuis was not involved in crafting the BEAT rules.

He also said the Treasury decided that changing the rules for foreign banks was appropriate.

“We were responsive to job creators,” he said.

The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.

Back in 2017, Republicans said the GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.

In the pharmaceutical and tech industries in particular, profits are often tied to patents. Companies had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units. The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.

But after the law was enacted, large multinationals in industries like consumer products discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate’s falling to 21 percent from 35 percent.

Lobbyists for Procter & Gamble and other companies turned to lawmakers for help. They asked members of the Senate Finance Committee to tell Treasury officials that they hadn’t intended the GILTI to affect their industries. It was a simple but powerful strategy: Because the Treasury was required to consider congressional intent when writing the tax rules, such explanations could sway the outcome.

Several senators then met with Mr. Mnuchin to discuss the rules.

One lobbyist, Michael Caballero, had been a senior Treasury official in the Obama administration. His clients included Credit Suisse and the industrial conglomerate United Technologies. He met repeatedly with Treasury and White House officials and pushed them to modify the rules so that big companies hit by the GILTI wouldn’t lose certain tax deductions.

In essence, the “high-tax exception” that Mr. Caballero was proposing would allow companies to deduct expenses that they incurred in their overseas operations from their American profits — lowering their United States tax bills.

Other companies jumped on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch, Comcast and P.&G. wrote letters or dispatched lobbyists to argue for the high-tax exception.

After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.

Two years after the tax cuts became law, their impact is becoming clear.

Companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profits remain out of reach of the United States government.

The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.

This month, the Organization for Economic Cooperation and Development calculated that the United States in 2018 experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had by far the largest budget deficit of any of those countries.

In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts. Big companies have spent this fall trying to win more.

In September, Chris D. Trunck, the vice president for tax at Owens Corning, the maker of insulation and roofing materials, wrote to the I.R.S. He pushed the Treasury to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.

The same month, the underwear manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin to broaden the high-tax exception so that more companies could take advantage of it.

Otherwise, Mr. Purvis warned, “the GILTI regime will become an impediment to U.S. companies and their ability to not only compete globally as a general matter, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business.”

The implied threat was clear: If the Treasury didn’t further chip away at the new tax, companies like Hanes, based in Winston-Salem, N.C., might have no choice but to move their headquarters overseas.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

How Big Companies Won New Tax Breaks From the Trump Administration

The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.

The biggest change to the tax code in three decades, the law slashed taxes for big companies, part of an effort to coax them to invest more in the United States and to discourage them from stashing profits in overseas tax havens.

Corporate executives, major investors and the wealthiest Americans hailed the tax cuts as a once-in-a-generation boon not only to their own fortunes but also to the United States economy.

But big companies wanted more — and, not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders. The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.

One consequence is that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50 percent since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law.

Laws like the 2017 tax cuts are carried out by federal agencies that first must formalize them via rules and regulations. The process of writing the rules, conducted largely out of public view, can determine who wins and who loses.

Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process.

The lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States.

The blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.

Thanks in part to the chaotic manner in which the bill was rushed through Congress — a situation that gave the Treasury Department extra latitude to interpret a law that was, by all accounts, sloppily written — the corporate lobbying campaign was a resounding success.

ImageWestlake Legal Group merlin_130895553_4ce98faa-e477-440f-b670-73e9bce61508-articleLarge How Big Companies Won New Tax Breaks From the Trump Administration United States Politics and Government Trump, Donald J Treasury Department Taxation Tax Shelters Tax Cuts and Jobs Act (2017) Tax Credits, Deductions and Exemptions Procter&Gamble Co Mnuchin, Steven T Internal Revenue Service Income Tax Hanesbrands Inc General Electric Company Federal Taxes (US) Credit Suisse Group AG Corporate Taxes Anheuser-Busch InBev NV

A section of the Senate bill. Congress gave final approval to the Tax Cuts and Jobs Act on Dec. 20, 2017.Credit…Jon Elswick/Associated Press

Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.

“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world.”

It is the latest example of the benefits of the Republican tax package flowing disproportionately to the richest of the rich. Even a tax break that was supposed to aid poor communities — an initiative called “opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.

Of course, companies didn’t get everything they wanted, and Brian Morgenstern, a Treasury spokesman, defended the department’s handling of the tax rules. “No particular taxpayer or group had any undue influence at any time in the process,” he said.

Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.

In the late 1990s, American companies accelerated their efforts to claim that trillions of dollars of profits they earned in high-tax places like the United States, Japan or Germany were actually earned in low- or no-tax places like Luxembourg, Bermuda or Ireland.

Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques that let the companies pay taxes at far less than the 35 percent corporate tax rate in the United States that existed before the 2017 changes. Their playful nicknames — like Double Irish and Dutch Sandwich — made them sound benign.

The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.

When President Trump and congressional Republicans assembled an enormous tax-cut package in 2017, they pitched it in part as a grand bargain: Companies would get the deep tax cuts that they had spent years clamoring for, but the law would also represent a long-overdue effort to fight corporate tax avoidance and the shipment of jobs overseas.

“The situation where companies are actually encouraged to move overseas and keep their profits overseas makes no sense,” Senator Rob Portman, an Ohio Republican, said on the Senate floor in November 2017.

Republicans were racing to secure a legislative victory during Mr. Trump’s first year in office — a period marked by the administration’s failure to repeal Obamacare and an embarrassing procession of political blunders. Sweeping tax cuts could give Republicans a jolt of much-needed momentum heading into the 2018 midterm elections.

To speed things along, Republicans used a congressional process known as “budget reconciliation,” which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority. But to qualify for that parliamentary green light, the net cost of the bill — after accounting for different tax cuts and tax increases — had to be less than $1.5 trillion over 10 years.

The bill’s cuts totaled $5.5 trillion. The corporate income tax rate shrank to 21 percent from 35 percent, and companies also won a tax break on the trillions in profits brought home from offshore.

To close the gap between the $5.5 trillion in cuts and the maximum price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

Two of the biggest new taxes were supposed to apply to multinational corporations, and lawmakers bestowed them with easy-to-pronounce acronyms — BEAT and GILTI — that belie their complexity.

BEAT stands for the base erosion and anti-abuse tax. It was aimed largely at foreign companies with major operations in the United States, some of which had for years minimized their United States tax bills by shifting money between American subsidiaries and their foreign parent companies.

Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.

The BEAT aimed to make that less lucrative. Some payments that companies sent to their foreign affiliates would face a new 10 percent tax.

The other big measure was called GILTI: global intangible low-taxed income.

To reduce the benefit companies reaped by claiming that their profits were earned in tax havens, the law imposed an additional tax of up to 10.5 percent on some offshore earnings.

The Joint Committee on Taxation, the congressional panel that estimates the impacts of tax changes, predicted that the BEAT and GILTI would bring in $262 billion over a decade — roughly enough to fund the Treasury Department, the Environmental Protection Agency and the National Cancer Institute for 10 years.

Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.

From the start, the new taxes were pocked with loopholes.

In the BEAT, for example, Senate Republicans hoped to avoid a revolt by large companies. They wrote the law so that any payments an American company made to a foreign affiliate for something that went into a product — as opposed to, say, interest payments on loans — were excluded from the tax.

Let’s say an American pharmaceutical company sells pills in the United States. The pills are manufactured by a subsidiary in Ireland, and the American parent pays the Irish unit for the pills before they are sold to the public. Those payments mean that the company’s profits in the United States, where taxes are relatively high, go down; profits in tax-friendly Ireland go up.

Because such payments to Ireland wouldn’t be taxed, some companies that had been the most aggressive at shifting profits into offshore havens were spared the full brunt of the BEAT.

Other companies, like General Electric, were surprised to be hit by the new tax, thinking it applied only to foreign multinationals, according to Pat Brown, who had been G.E.’s top tax expert.

Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast this year that the Trump administration should bridge the gap between expectations about the tax law and how it was playing out in reality. He lobbied the Treasury on behalf of G.E.

“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”

Almost immediately after Mr. Trump signed the bill, companies and their lobbyists — including G.E.’s Mr. Brown — began a full-court pressure campaign to try to shield themselves from the BEAT and GILTI.

The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.

Chip Harter was the Treasury official in charge of writing the rules for the BEAT and GILTI. He had spent decades at PwC and the law firm Baker McKenzie, counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.

Starting in January 2018, he and his colleagues found themselves in nonstop meetings — roughly 10 a week at times — with lobbyists for companies and industry groups.

The Organization for International Investment — a powerful trade group for foreign multinationals like the Swiss food company Nestlé and the Dutch chemical maker LyondellBasell — objected to a Treasury proposal that would have prevented companies from using a complex currency-accounting maneuver to avoid the BEAT.

The group’s lobbyists were from PwC and Baker McKenzie, Mr. Harter’s former firms, according to public lobbying disclosures. One of them, Pam Olson, was the top Treasury tax official in the George W. Bush administration. (Mr. Morgenstern, the Treasury spokesman, said Mr. Harter didn’t meet with PwC while the rules were being written.)

This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.

One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.

American regulators require international banks to ensure that their United States divisions are financially equipped to absorb big losses in a crisis. To meet those requirements, foreign banks lend the money to their American outposts. Those loans accrue interest. Under the BEAT, the interest that the American units paid to their European parents would often be taxed.

“Foreign banks should not be penalized by the U.S. tax laws for complying” with regulations, said Briget Polichene, chief executive of the Institute of International Bankers, whose members include many of the world’s largest banks.

Banks flooded the Treasury Department with lobbyists and letters.

Late last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and told him about the plan to give the banks a break. Mr. Mnuchin — a longtime banking executive before joining the Trump administration — signed off on the new exemptions, according to a person familiar with the matter.

A few months later, the tax-policy office handed another victory to the foreign banks, ruling that an even wider range of bank payments would be exempted.

Among the lobbyists who successfully pushed the banks’ case in private meetings with senior Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb. Her client was the Institute of International Bankers.

In September 2019, Ms. Nijenhuis took off her lobbying hat and joined the Treasury’s Office of Tax Policy, which was still writing the rules governing the tax law.

Some tax experts said that the Treasury had no legal authority to exempt the bank payments from the BEAT; only Congress had that power. The Trump administration created the exception “out of whole cloth,” said Mr. Wells, the University of Houston professor.

Even inside the Treasury, the ruling was controversial. Some officials told Mr. Harter — the senior official in charge of the international rules — that the department lacked the power, according to people familiar with the discussions. Mr. Harter dismissed the objections.

Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce by up to $50 billion the revenue raised by the BEAT.

Over all, the BEAT is likely to collect “a small fraction” of the $150 billion of new tax revenue that was originally projected by Congress, said Thomas Horst, who advises companies on their overseas tax arrangements. He came to that conclusion after reviewing the tax disclosures in more than 140 annual reports filed by multinationals.

Mr. Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed these issues internally and are fully comfortable that we have the legal authority for the conclusions reached in these regulations.” He said Ms. Nijenhuis was not involved in crafting the BEAT rules.

He also said the Treasury decided that changing the rules for foreign banks was appropriate.

“We were responsive to job creators,” he said.

The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.

Back in 2017, Republicans said the GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.

In the pharmaceutical and tech industries in particular, profits are often tied to patents. Companies had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units. The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.

But after the law was enacted, large multinationals in industries like consumer products discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate’s falling to 21 percent from 35 percent.

Lobbyists for Procter & Gamble and other companies turned to lawmakers for help. They asked members of the Senate Finance Committee to tell Treasury officials that they hadn’t intended the GILTI to affect their industries. It was a simple but powerful strategy: Because the Treasury was required to consider congressional intent when writing the tax rules, such explanations could sway the outcome.

Several senators then met with Mr. Mnuchin to discuss the rules.

One lobbyist, Michael Caballero, had been a senior Treasury official in the Obama administration. His clients included Credit Suisse and the industrial conglomerate United Technologies. He met repeatedly with Treasury and White House officials and pushed them to modify the rules so that big companies hit by the GILTI wouldn’t lose certain tax deductions.

In essence, the “high-tax exception” that Mr. Caballero was proposing would allow companies to deduct expenses that they incurred in their overseas operations from their American profits — lowering their United States tax bills.

Other companies jumped on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch, Comcast and P.&G. wrote letters or dispatched lobbyists to argue for the high-tax exception.

After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.

Two years after the tax cuts became law, their impact is becoming clear.

Companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profits remain out of reach of the United States government.

The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.

This month, the Organization for Economic Cooperation and Development calculated that the United States in 2018 experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had by far the largest budget deficit of any of those countries.

In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts. Big companies have spent this fall trying to win more.

In September, Chris D. Trunck, the vice president for tax at Owens Corning, the maker of insulation and roofing materials, wrote to the I.R.S. He pushed the Treasury to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.

The same month, the underwear manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin to broaden the high-tax exception so that more companies could take advantage of it.

Otherwise, Mr. Purvis warned, “the GILTI regime will become an impediment to U.S. companies and their ability to not only compete globally as a general matter, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business.”

The implied threat was clear: If the Treasury didn’t further chip away at the new tax, companies like Hanes, based in Winston-Salem, N.C., might have no choice but to move their headquarters overseas.

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Peter Navarro, Trump’s Trade Warrior, Has Not Made His Peace With China

Westlake Legal Group 24DC-NAVARRO-01-facebookJumbo Peter Navarro, Trump’s Trade Warrior, Has Not Made His Peace With China United States Politics and Government United States International Relations United States Economy Trump, Donald J Protectionism (Trade) Navarro, Peter International Trade and World Market Federal Taxes (US) Economic Conditions and Trends Customs (Tariff)

WASHINGTON — When President Trump gathered his top economic advisers at the White House to decide whether to make a deal with China, Peter Navarro, his hawkish trade adviser, was ready with a flurry of arguments against the move.

A deal that removed any of Mr. Trump’s tariffs would make America look weak, Mr. Navarro argued at the meeting two weeks ago, and he assailed those who endorsed the idea as “globalists,” according to an administration official in the room.

It was a familiar argument for Mr. Trump’s top trade adviser, who has spent the past three years fanning the president’s protectionist instincts and encouraging him to embark on a punishing trade war with China. Mr. Navarro’s dark warnings about China’s ambitions and its threat to America have fueled Mr. Trump’s embrace of tariffs, overcoming the objections of other senior advisers.

This time, however, Mr. Trump was not persuaded. With the 2020 election approaching, Mr. Trump dismissed Mr. Navarro’s concerns, opting for an initial deal with China that would reduce some tariffs on Chinese goods in exchange for a commitment from Beijing to buy more American products and a series of promises to resolve other concerns.

“The deal with China is a massive deal,” Mr. Trump said at an event about deregulation at the White House last week, adding: “No, I’m not a globalist.”

Mr. Navarro declined to comment on the events of the meeting.

“What happens in the Oval should stay in the Oval, both for the sanctity and security of the internal discussions and for the good of the country,” Mr. Navarro said.

For three years, Mr. Navarro, 70, has been Mr. Trump’s trade warrior, pushing the president to rip up trade deals and rewrite them so they are more favorable to American workers. An academic with no previous government or business experience, Mr. Navarro has managed to exert enormous influence over United States trade policy by tapping into the president’s disdain for globalization and encouraging his view that China has been “robbing us blind.”

China specialists tend to view Mr. Navarro warily. He does not speak Mandarin and had visited the country only once before traveling there in 2018 as part of a White House delegation. Some scholars sneered in October when it emerged that Mr. Navarro had taken creative license to quote a fictitious source — Ron Vara — in several of his nonacademic books. Even his own colleagues have chafed at his aggressive approach to China and have at times tried to block Mr. Navarro’s access to the president.

Still, Mr. Navarro’s thinking has become deeply influential. Even those who disagree with him on economic policy and China increasingly tend to credit him for having guided the political debate.

“For all the criticism he gets from the free trade wing of the Republican Party, he was one of the first people to ring the alarm on China years ago,” said Stephen Moore, a Heritage Foundation economist who also advised Mr. Trump’s 2016 campaign. “Now I think more people, including myself, look at China’s trade policies as really predatory and economically harmful.”

With Mr. Trump moving to ease tensions with his favorite geopolitical foil and with trade deals with Canada, Mexico, Japan and South Korea now complete, Mr. Navarro is at a something of a crossroads — a trade warrior looking for a new fight.

Mr. Navarro has embraced under-the-radar projects aimed at curbing China’s economic power, including efforts to increase inspections of Chinese packages at the ports and renegotiating Chinese postal fees. And many China hawks believe that the government’s long history of shirking economic pledges will ultimately vindicate his distrust of an agreement that does little to alter China’s behavior at home.

“I would be very skeptical of any significant agreement being made,” said Greg Autry, a professor at the University of Southern California’s Marshall School of Business and author with Mr. Navarro of the book “Death by China.” “If you’ve spent any time watching the Chinese, they don’t honor their agreements.”

Mr. Navarro’s entry into Mr. Trump’s orbit was not exactly predictable. A business professor at the University of California, Irvine, Mr. Navarro ran and lost five elections as a progressive Democrat — including unsuccessful bids for mayor of San Diego and California’s 49th Congressional District.

As a candidate in the 1990s and 2000s, Mr. Navarro supported abortion rights, gay rights, environmental protection and higher taxes on the rich. He even spoke at the 1996 Democratic Convention and campaigned that year with Hillary Clinton. In his book “San Diego Confidential,” Mr. Navarro described Mrs. Clinton as “one of the most gracious, intelligent, perceptive, and, yes, classy women I have ever met.”

“It is such as dramatic change from how he portrayed himself when he was in the political field in San Diego,” said Doug Case, a former president of the San Diego Democratic Club. “It looks like maybe his true colors have come out.”

After his political career sputtered, Mr. Navarro continued teaching and writing books about business and investing. But before long, his attention turned to China and its trade practices, which many left-leaning Democrats, including labor leaders, believed were killing American jobs.

Mr. Navarro’s skepticism first emerged in the 1970s while he was a Peace Corps volunteer building and repairing fish ponds in Thailand. He traveled extensively in Asia and said he observed the negative impact China was having on the economies of its neighbors. He became increasingly critical of how China’s trade practices were impacting the United States after its admission to the World Trade Organization in 2001, particularly as many of his business students complained of losing their jobs as a result of Chinese competition.

Mr. Navarro’s views soon hardened and he began publishing a series of anti-China screeds, including “The Coming China Wars,” which Mr. Trump in 2011 listed as one of his favorite books about China, and “Death By China.”

In that book and the accompanying documentary, Mr. Navarro and Mr. Autry excoriated China for unscrupulous economic practices and manufacturing deadly products, like flammable toddler overalls and fake Viagra. They also faulted multinational companies like Walmart for using China to source cheap goods that were putting American manufacturers out of business.

Mr. Navarro’s views caught the attention of then-candidate Donald J. Trump, who shared similar opinions about China’s impact on American manufacturing and was seeking experts with unconventional views that matched his own. Mr. Navarro joined the campaign as an economic adviser in 2016 and quickly gained the trust of Mr. Trump, who refers to Mr. Navarro as “my tough guy on China.”

“My whole philosophy in life and in this job is the Gretzky perspective — skate to where the puck is going to be, anticipate problems that the president is going to want to solve, and get on them,” Mr. Navarro said in an interview.

Early on in Mr. Trump’s term, Mr. Navarro’s influence was not assured.

Mr. Navarro joined the White House with multiple trade actions written and ready for the president’s signature, including a directive to begin withdrawing the United States from the North American Free Trade Agreement or “Shafta,” as Mr. Navarro liked to call NAFTA. But opposition from other advisers, including Gary D. Cohn, the former head of the National Economic Council, stayed the president’s hand.

For months, it seemed like Mr. Cohn and his allies had succeeded in muzzling Mr. Navarro — blocking at least three attempts to trigger the NAFTA withdrawal process, as well as an earlier directive to impose steel tariffs and withdraw from a South Korea trade agreement.

But as Mr. Trump’s signature tax cut neared fruition in late 2017, the president grew more anxious to translate his trade promises into policy. “Where are my tariffs? Bring me my tariffs,” the president would say, and call in his advisers to debate trade policy in front of him.

Mr. Navarro, sometimes joined by Commerce Secretary Wilbur Ross, would recommend tariffs, arguing they would protect domestic industries, demonstrate the president was serious about reversing lopsided trade agreements and raise revenue. Mr. Cohn, Treasury Secretary Steven Mnuchin and former staff secretary Rob Porter regularly rebutted those arguments, saying tariffs would harm businesses, the stock market and the president’s re-election chances.

To help buttress his case, Mr. Navarro developed a red, black and yellow chart outlining “China’s Acts, Policies, & Practices of Economic Aggression,” including cyberespionage and theft of American intellectual property. Mr. Navarro warned Mr. Trump that China had long promised — and failed — to alter its behavior and said tariffs were the most effective way to force Beijing to change.

By 2018, Mr. Trump was ready to pounce, and Mr. Navarro’s vision of confronting China became reality. An initial 25 percent tax on $34 billion of Chinese goods in July 2018 quickly escalated to tariffs on $360 billion of products with a threat to tax nearly every Chinese product.

The economic pressure brought Beijing to the negotiating table but Mr. Trump ultimately backed down, agreeing to a Phase 1 trade deal that would reduce some tariffs and remove the threat of additional levies in exchange for China buying more farm goods and giving American companies more access to the Chinese market. Almost none of the big structural changes that Mr. Navarro had pushed for were included. Mr. Trump has said those will be addressed in future talks with China, and many of the tariffs Mr. Navarro recommended will stay in place.

Mr. Navarro has found other ways to counter China. Earlier this year he waged a successful offensive against a global postal treaty that had allowed Chinese businesses to ship international packages at much cheaper rates than the United States.

He’s helped step up inspections of Chinese packages to crack down on online counterfeiting and gotten involved with a project to revive American shipyards. Earlier this year, when executives at Crowley Maritime Corp. told Mr. Navarro that the Navy was in the process of procuring a transport ship from China that would be modified to American specifications, Mr. Navarro personally intervened to scuttle the bid.

He has come to view his office as akin to a special forces unit within the federal bureaucracy.

“With a small office, I learned early that the real power of being at the White House and the real effectiveness stems from leverage — on any given day, one or more government agencies are helping with this office’s mission,” he said. “You don’t need to be a big bloated bureaucracy. All you need be is lean and flat and nimble enough to harness agency resources for the president and his agenda.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Peter Navarro, Trump’s Trade Warrior, Has Not Made His Peace With China

Westlake Legal Group 24DC-NAVARRO-01-facebookJumbo Peter Navarro, Trump’s Trade Warrior, Has Not Made His Peace With China United States Politics and Government United States International Relations United States Economy Trump, Donald J Protectionism (Trade) Navarro, Peter International Trade and World Market Federal Taxes (US) Economic Conditions and Trends Customs (Tariff)

WASHINGTON — When President Trump gathered his top economic advisers at the White House to decide whether to make a deal with China, Peter Navarro, his hawkish trade adviser, was ready with a flurry of arguments against the move.

A deal that removed any of Mr. Trump’s tariffs would make America look weak, Mr. Navarro argued at the meeting two weeks ago, and he assailed those who endorsed the idea as “globalists,” according to an administration official in the room.

It was a familiar argument for Mr. Trump’s top trade adviser, who has spent the past three years fanning the president’s protectionist instincts and encouraging him to embark on a punishing trade war with China. Mr. Navarro’s dark warnings about China’s ambitions and its threat to America have fueled Mr. Trump’s embrace of tariffs, overcoming the objections of other senior advisers.

This time, however, Mr. Trump was not persuaded. With the 2020 election approaching, Mr. Trump dismissed Mr. Navarro’s concerns, opting for an initial deal with China that would reduce some tariffs on Chinese goods in exchange for a commitment from Beijing to buy more American products and a series of promises to resolve other concerns.

“The deal with China is a massive deal,” Mr. Trump said at an event about deregulation at the White House last week, adding: “No, I’m not a globalist.”

Mr. Navarro declined to comment on the events of the meeting.

“What happens in the Oval should stay in the Oval, both for the sanctity and security of the internal discussions and for the good of the country,” Mr. Navarro said.

For three years, Mr. Navarro, 70, has been Mr. Trump’s trade warrior, pushing the president to rip up trade deals and rewrite them so they are more favorable to American workers. An academic with no previous government or business experience, Mr. Navarro has managed to exert enormous influence over United States trade policy by tapping into the president’s disdain for globalization and encouraging his view that China has been “robbing us blind.”

China specialists tend to view Mr. Navarro warily. He does not speak Mandarin and had visited the country only once before traveling there in 2018 as part of a White House delegation. Some scholars sneered in October when it emerged that Mr. Navarro had taken creative license to quote a fictitious source — Ron Vara — in several of his nonacademic books. Even his own colleagues have chafed at his aggressive approach to China and have at times tried to block Mr. Navarro’s access to the president.

Still, Mr. Navarro’s thinking has become deeply influential. Even those who disagree with him on economic policy and China increasingly tend to credit him for having guided the political debate.

“For all the criticism he gets from the free trade wing of the Republican Party, he was one of the first people to ring the alarm on China years ago,” said Stephen Moore, a Heritage Foundation economist who also advised Mr. Trump’s 2016 campaign. “Now I think more people, including myself, look at China’s trade policies as really predatory and economically harmful.”

With Mr. Trump moving to ease tensions with his favorite geopolitical foil and with trade deals with Canada, Mexico, Japan and South Korea now complete, Mr. Navarro is at a something of a crossroads — a trade warrior looking for a new fight.

Mr. Navarro has embraced under-the-radar projects aimed at curbing China’s economic power, including efforts to increase inspections of Chinese packages at the ports and renegotiating Chinese postal fees. And many China hawks believe that the government’s long history of shirking economic pledges will ultimately vindicate his distrust of an agreement that does little to alter China’s behavior at home.

“I would be very skeptical of any significant agreement being made,” said Greg Autry, a professor at the University of Southern California’s Marshall School of Business and author with Mr. Navarro of the book “Death by China.” “If you’ve spent any time watching the Chinese, they don’t honor their agreements.”

Mr. Navarro’s entry into Mr. Trump’s orbit was not exactly predictable. A business professor at the University of California, Irvine, Mr. Navarro ran and lost five elections as a progressive Democrat — including unsuccessful bids for mayor of San Diego and California’s 49th Congressional District.

As a candidate in the 1990s and 2000s, Mr. Navarro supported abortion rights, gay rights, environmental protection and higher taxes on the rich. He even spoke at the 1996 Democratic Convention and campaigned that year with Hillary Clinton. In his book “San Diego Confidential,” Mr. Navarro described Mrs. Clinton as “one of the most gracious, intelligent, perceptive, and, yes, classy women I have ever met.”

“It is such as dramatic change from how he portrayed himself when he was in the political field in San Diego,” said Doug Case, a former president of the San Diego Democratic Club. “It looks like maybe his true colors have come out.”

After his political career sputtered, Mr. Navarro continued teaching and writing books about business and investing. But before long, his attention turned to China and its trade practices, which many left-leaning Democrats, including labor leaders, believed were killing American jobs.

Mr. Navarro’s skepticism first emerged in the 1970s while he was a Peace Corps volunteer building and repairing fish ponds in Thailand. He traveled extensively in Asia and said he observed the negative impact China was having on the economies of its neighbors. He became increasingly critical of how China’s trade practices were impacting the United States after its admission to the World Trade Organization in 2001, particularly as many of his business students complained of losing their jobs as a result of Chinese competition.

Mr. Navarro’s views soon hardened and he began publishing a series of anti-China screeds, including “The Coming China Wars,” which Mr. Trump in 2011 listed as one of his favorite books about China, and “Death By China.”

In that book and the accompanying documentary, Mr. Navarro and Mr. Autry excoriated China for unscrupulous economic practices and manufacturing deadly products, like flammable toddler overalls and fake Viagra. They also faulted multinational companies like Walmart for using China to source cheap goods that were putting American manufacturers out of business.

Mr. Navarro’s views caught the attention of then-candidate Donald J. Trump, who shared similar opinions about China’s impact on American manufacturing and was seeking experts with unconventional views that matched his own. Mr. Navarro joined the campaign as an economic adviser in 2016 and quickly gained the trust of Mr. Trump, who refers to Mr. Navarro as “my tough guy on China.”

“My whole philosophy in life and in this job is the Gretzky perspective — skate to where the puck is going to be, anticipate problems that the president is going to want to solve, and get on them,” Mr. Navarro said in an interview.

Early on in Mr. Trump’s term, Mr. Navarro’s influence was not assured.

Mr. Navarro joined the White House with multiple trade actions written and ready for the president’s signature, including a directive to begin withdrawing the United States from the North American Free Trade Agreement or “Shafta,” as Mr. Navarro liked to call NAFTA. But opposition from other advisers, including Gary D. Cohn, the former head of the National Economic Council, stayed the president’s hand.

For months, it seemed like Mr. Cohn and his allies had succeeded in muzzling Mr. Navarro — blocking at least three attempts to trigger the NAFTA withdrawal process, as well as an earlier directive to impose steel tariffs and withdraw from a South Korea trade agreement.

But as Mr. Trump’s signature tax cut neared fruition in late 2017, the president grew more anxious to translate his trade promises into policy. “Where are my tariffs? Bring me my tariffs,” the president would say, and call in his advisers to debate trade policy in front of him.

Mr. Navarro, sometimes joined by Commerce Secretary Wilbur Ross, would recommend tariffs, arguing they would protect domestic industries, demonstrate the president was serious about reversing lopsided trade agreements and raise revenue. Mr. Cohn, Treasury Secretary Steven Mnuchin and former staff secretary Rob Porter regularly rebutted those arguments, saying tariffs would harm businesses, the stock market and the president’s re-election chances.

To help buttress his case, Mr. Navarro developed a red, black and yellow chart outlining “China’s Acts, Policies, & Practices of Economic Aggression,” including cyberespionage and theft of American intellectual property. Mr. Navarro warned Mr. Trump that China had long promised — and failed — to alter its behavior and said tariffs were the most effective way to force Beijing to change.

By 2018, Mr. Trump was ready to pounce, and Mr. Navarro’s vision of confronting China became reality. An initial 25 percent tax on $34 billion of Chinese goods in July 2018 quickly escalated to tariffs on $360 billion of products with a threat to tax nearly every Chinese product.

The economic pressure brought Beijing to the negotiating table but Mr. Trump ultimately backed down, agreeing to a Phase 1 trade deal that would reduce some tariffs and remove the threat of additional levies in exchange for China buying more farm goods and giving American companies more access to the Chinese market. Almost none of the big structural changes that Mr. Navarro had pushed for were included. Mr. Trump has said those will be addressed in future talks with China, and many of the tariffs Mr. Navarro recommended will stay in place.

Mr. Navarro has found other ways to counter China. Earlier this year he waged a successful offensive against a global postal treaty that had allowed Chinese businesses to ship international packages at much cheaper rates than the United States.

He’s helped step up inspections of Chinese packages to crack down on online counterfeiting and gotten involved with a project to revive American shipyards. Earlier this year, when executives at Crowley Maritime Corp. told Mr. Navarro that the Navy was in the process of procuring a transport ship from China that would be modified to American specifications, Mr. Navarro personally intervened to scuttle the bid.

He has come to view his office as akin to a special forces unit within the federal bureaucracy.

“With a small office, I learned early that the real power of being at the White House and the real effectiveness stems from leverage — on any given day, one or more government agencies are helping with this office’s mission,” he said. “You don’t need to be a big bloated bureaucracy. All you need be is lean and flat and nimble enough to harness agency resources for the president and his agenda.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

House Votes to Repeal Trump’s SALT Tax Hike That Burned Blue States

Westlake Legal Group 19dc-salt-facebookJumbo House Votes to Repeal Trump’s SALT Tax Hike That Burned Blue States Taxation Tax Cuts and Jobs Act (2017) Tax Credits, Deductions and Exemptions property taxes Law and Legislation Income Tax House of Representatives Federal Taxes (US)

WASHINGTON — The House voted on Thursday to temporarily eliminate a tax increase on some high-earning residents of states like California and New York that was included in President Trump’s 2017 tax overhaul, with some Republicans joining Democrats in support.

The bill would repeal a cap on a popular tax break that prevented taxpayers from deducting more than $10,000 in state and local taxes from their federal income taxes. It paired that repeal — which would be an effective tax cut for upper earners in high-tax states — with an increase on the highest earners across the country by raising the top income tax rate to 39.6 percent from 37 percent.

In a procedural twist, Democrats agreed to a Republican amendment that would limit the bill’s benefits for blue-state billionaires. It would maintain the so-called SALT cap on deductions for taxpayers earning more than $100 million per year, and direct the saved money to a $500 tax break for teachers and first responders. Representative Mike Thompson, Democrat of California, said the motion was accepted “in the spirit of the holiday season.”

The bill, which was approved by a vote of 218 to 206, has no chance of passing the Republican-controlled Senate, and Mr. Trump has threatened to veto it.

But it was hailed as a victory by its Democratic champions, many of whom were elected last year in wealthy, suburban areas where the SALT cap had raised some voters’ taxes.

“It’s about fairness,” Representative Thomas Suozzi, Democrat of New York and the lead sponsor of the legislation, said in an interview. “Do we want people moving away from New York to go to Florida because they lost their state and local tax deduction?”

When those residents move out of state, Mr. Suozzi said, “the remaining lower- and middle-income families are left holding the bag.”

The 2017 Trump tax law limited deductions for state and local taxes paid, like income and property taxes, to $10,000 per household per year. That resulted in net tax increases for a slice of high-earning residents of areas with high income or property taxes, which tend to be concentrated in large metropolitan areas like New York City and high-tax states like New Jersey and California.

The SALT cap was tucked into the 2017 tax overhaul in part to help finance it and reduce its impact on the deficit. The bill passed on Thursday includes some budgetary gymnastics in order to avoid adding to the federal debt. It would repeal the SALT cap for three years while raising the top income tax rate for six years. Because of how Republicans structured the 2017 law, the SALT cap is set to expire and the top rate is set to rise on their own at the end of 2025.

Voter anger toward the SALT cap in certain areas appears to have helped lift Democrats in the 2018 midterms. In the months leading up to the election, the online research platform SurveyMonkey interviewed nearly 30,000 registered voters about their opinions on the tax law, their voting intentions and other topics. A New York Times analysis of that data suggests that the SALT cap may have had a significant effect on voters’ views of the tax law — and perhaps even on how they voted — to a degree that could have influenced the narrowest races in those districts.

Efforts to repeal the cap have emerged as a division among Democrats who have long criticized Republicans for cutting taxes to favor the rich.

Many liberal policy analysts oppose raising the SALT cap, because it would mostly benefit high earners and they would rather use the money for spending programs to help the poor and middle class.

Repealing the cap “should not be a top priority,” Seth Hanlon, a senior fellow at the liberal Center for American Progress, wrote in an online column this month.

“If policymakers are concerned with the effect of the SALT cap on middle-class families,” he wrote, “there are options to address it without providing enormous windfalls for the wealthy.”

At least one leading presidential contender, former Vice President Joseph R. Biden Jr., favors eliminating the cap.

“This bill truly is a tax cut for the few,” said Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee. “What Democrats are proposing today is regressive.”

Mr. Suozzi said on Thursday that the repeal of the cap would be “100 percent paid for by the wealthiest Americans,” by raising the top income tax rate.

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